Sacred Heart College, Lucena City
Sacred Heart College, Lucena City
Sacred Heart College, Lucena City

FINANCIAL MANAGEMENT STUDENTS CATEGORIZE PSE LISTED COMPANIES BY MARKET CAPITALIZATION

DISCUSSION



Market Capitalization, also known as “market cap”, is defined as the aggregate valuation of the company based on its current share price and the total number of outstanding stocks. (Economic Times, n.d.) Market capitalization is used to set investor expectations and shape investment strategy and is calculated by multiplying the price of stock by its total number of outstanding shares. It is an important indicator of a company's size and helps an investor get a basic understanding of its characteristics including the risk factor. (Olga, 2018). According to Wilmington Trust on their article, “Market Capitalization and a Diversified Portfolio”, Market Cap measures not only what a company is worth on the open market, but also the market’s perception of its future prospects because it reflects what investors are willing to pay for its stock.

All companies are categorized according to their market capitalization as Large Cap, Mid Cap, and Small Cap. Moreover, Mega Cap or Giant Cap, Micro Cap and Nano Cap can also be used to categorize stocks on their capitalization. Based on the article of Morningstar Analysts (2017), the market capitalization for stocks is defined as per Asia ex-Japan. The current breakpoints are: Mega-cap or Giant Cap companies have a market cap in excess of $11,381,000,000.00 (₱593,177,720,000). Large cap companies consist of firms with a market value ranging from $2,398,000,000.00 to $11,380,999,999.99 (between ₱124,983,760,000 and ₱593,177,719,999.99). Mid cap companies have a market cap ranging from $774,000,000 to 2,397,999,999.99 (between ₱40,340,880,000.00 and ₱124,983,759,999.99). Small-cap companies on the other hand are typically those with a market value ranging from $209,000,000.00 to $773,999,999.99 (between ₱10,893,080,000 and ₱40,340,879,999.99). Micro-cap companies have a market cap of $208,999,999.99 (₱10,893,079,999.99). Investors need to gain more knowledge and have a better understanding of these categories for they are essential in making appropriate and smart investment decisions. Different types of investment strategies focus on the various market cap groups, and different valuation methods are applied depending on company size.

The following are the differences of each categories according from the article of Wilmington Trust, “Market Capitalization and a Diversified Portfolio”: Large-cap companies includes the big blue chip companies that are household names to most investors. Although investors in stocks in any market capitalization category incur risk, surprises have traditionally been less likely among these blue chip companies. Mid-cap companies tend to have achieved a degree of stability while still experiencing growth on their way to large capitalization. Small-cap companies are also relatively risky but have experienced rapid growth. Fifty-nine percent or 158 out of 267 stocks listed in the Philippine Stock Exchange Index (PSEi) belong to the micro cap category with market capitalization of ₱10,893,079,999.99 or less. Forty-six (46) or 18% are small caps with capitalization between ₱40,340,879,999.99- ₱10,893,080,000.00. Thirty (30) or 11% belong to mid caps with capitalization between ₱124,983,759,999.99- ₱40,340,880,000.00. Twenty-seven (27) or 10% of them have large capitalization or a capitalization of ₱124,983,760,000.00 to ₱593,177,719,999.99. Lastly, only six (6) of them have giant capitalization or a capitalization of ₱593,177,720,000.00 or more. As can be seen, majority of the stocks have micro capitalization. The industrial sector and the services sector both have thirty-seven (37) corporations with micro capitalization, which makes them the sectors with the highest number of corporations with micro capitalization. It is followed by the holding firm sector with twenty-four (24) corporations with micro capitalization. The services sector and the industrial sector have thirteen (13) and twelve (12) corporations with small capitalization respectively which makes them the sectors with the highest number of corporations with small capitalization. In addition to that, these two sectors also have the highest number of corporations with mid capitalization.

Interestingly, they do not anymore have the most corporations with large and giant capitalization. This is due to the fact that these two sectors have the most number of stocks listed under them. The holding firms sector has the highest number of corporations with large capitalization while financials and property sector have the highest number of corporations with giant capitalization. In terms of total market capitalization, the financial sector, holding firms sector and industrial sector have the highest market capitalization of ₱4,566,672,530,736.00, ₱4,155,260,898,830.00, ₱3,082,565,362,440.00 respectively. In spite of only having 11.24% of the stocks in PSEi, the financial sector takes lead in the total market capitalization. A corporation under the financial sector has an average market capitalization of ₱152,222,417,691.20 which still makes it the sector with the highest capitalization. It is followed by holding firms sector with an average market capitalization of ₱101,347,826,800.76.

On the other hand, ETF-Equity and Small, Medium & Emerging Board have the lowest market capitalization of ₱1,628,908,176.00 and ₱10,310,524,728.09.


CONCLUSION

There are 267 listed companies in the Philippine Stock Exchange wherein 59% are micro cap, 18% small caps, 11% mid caps, 10% are large caps and only 2% belong to giant caps. The highest market capitalization is Manulife Financial Corporation with P1.5 Trillion and the lowest is Easycall Communication Philippines Inc. with around P1Million.

Institutional and individual investors as well as Finance students need to know the category of PSE listed companies to have a better understanding of their respective market capitalization in order to make appropriate and smart investment decisions. The categorization will help them in formulating strategies focusing on the various market cap groups, and employ different valuation methods applicable to the company size.



LINK TO GRAPHICS AND ANALYTICS
https://drive.google.com/file/d/1WFhZmDvSAP92xHehlkIiNRfVyKT5H1jU/view




References:

Definition of Market Capitalization. (n.d.) Retrieved from:https://economictimes.indiatimes.com/definition/market-capitalization
Morningstar Analysts (2017). “How We Categorize Our Funds” Retrieved from: https//www.morningstar.in/posts/40307/how-we-categorize-our-funds.aspx
Robert O. (2018). “Why is Market Capitalization an Important Measure of a Company's Value?” Retrieved from: https://www.goodreturns.in/classroom/2018/06/what-is-market-capitalization-why-is-it-important-721580.html
Wilmington Trust (n.d.)”Market Capitalization and a Diversified Portfolio”. Retrieved from: https://library.wilmingtontrust.com/investment-management/market-capitalization-and-a-diversified-portfolio