Free-Float Methodology


DEFINITION of '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:

Free-Float Methodology


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BREAKING DOWN 'Free-Float Methodology'

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.


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  1. How are S&P 500 index components weighted?

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  2. How is the value of the S&P 500 calculated?

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  3. Why would a corporation issue convertible bonds?

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  4. What is the difference between shares outstanding and floating stock?

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    The only meaningful difference between market-risk premium and equity-risk premium is scope. Both terms refer to the same ... Read Full Answer >>
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