Free-Float Methodology
A method by which the market capitalization of an index's underlying companies is calculated. Free-float methodology market capitalization is calculated by taking the equity's price and multiplying it by the number of shares readily available in the market. Instead of using all of the shares outstanding like the full-market capitalization method, the free-float method excludes locked-in shares such as those held by promoters and governments.
Calculated as:
Investopedia Says:
The free-float method is seen as a better way of calculating market capitalization because it provides a more accurate reflection of market movements. When using a free-float methodology, the resulting market capitalization is smaller than what would result from a full-market capitalization method.
Free-float methodology has been adopted by most of the world's major indexes, including the Dow Jones Industrial Average and the S&P 500.
. Related Terms:
Capitalization-Weighted Index
Dow Jones Industrial Average - DJIA
Market Capitalization
Nasdaq
Price-Weighted Index
Standard & Poor's 500 Index - S&P 500
Weighted Average Market Capitalization |