Free-float market capitalization

Free-float market capitalization (also known as float-adjusted market capitalization) is a method of calculating the market value of a publicly traded company based only on the shares that are freely available for trading in the public market. Unlike total market capitalization, which includes all issued and outstanding shares, free-float market capitalization excludes shares that are held by governments, company promoters, founders, strategic investors, controlling shareholders, or other parties whose holdings are subject to long-term restrictions and are not normally traded. The methodology provides a more accurate representation of the investable portion of a company's equity.

Free-float market capitalization is calculated by multiplying a company's current share price by the number of shares available for public trading (the free float). The resulting figure is widely used by stock exchanges and index providers to determine the weighting of constituent companies in market-capitalization-weighted indices. Major indices, including the S&P 500, FTSE 100, MSCI World, Nikkei 225 (for certain calculations), and the KOSPI, employ free-float adjustments to ensure that index weights better reflect the securities that investors can readily buy and sell.

The adoption of free-float market capitalization has improved the accuracy and investability of equity indices by reducing the influence of companies with large blocks of closely held or restricted shares. It has become the international standard for index construction and is used by numerous exchanges, index providers, and investment funds worldwide. The methodology also enhances liquidity representation, facilitates passive investment strategies, and improves the tracking performance of index funds and exchange-traded funds (ETFs).