As most investors will know, the automated data aggregators like Google Finance often mis-state the market capitalisation of a company, because their automatic systems only count listed shares.
The correct definition of market capitalisation is the stock price multiplied by the number of shares outstanding. Anyone with google can figure that out:
Of course, many companies have some shares that are not listed (usually because they are escrowed). Typically, those companies go out of their way to inform investors of their correct market capitalisation in their presentations. You can see an example below.
However, the basic, obvious, and near universal definition of market capitalisation apparently is a more fluid concept for Buddy Platform Ltd (ASX:BUD), a company I have previously considered to be an interesting prospect. Indeed that company used the ASX announcement platform to draw investors attention to a research report published on the company.
That research report from State One Stockbroking states that the Buddy Platform "market capitalisation" is $23 million, at a share price of 8 cents, as you can see below.
However, as you can see they have used "quoted shares outstanding" not "total shares outstanding" which is used in the normal definition of market capitalisation. Now, if they had said "market cap of quoted shares", that wouldn't be a problem. But the usual definition of market capitalisation includes all shares. As a result, this is a very peculiar practice.
Now, a company is not responsible for what others write about it. I could say "Buddy Platform earns profits" or "CEO Dave McLauchlan is quick to correct errors" but me saying those things does not make it true. However, my question is why the company used the ASX platform to draw attention to a research report that used a very peculiar definition of market cap.
I asked the CEO of Buddy Platform, Dave McLauchlan, about this decision on twitter. You can see his response below:
Now, as an analyst I have been taught to use the normal definition of market capitalisation. I have yet to meet an analyst that disagrees with me on that, but I'd be keen to compile a list of analysts and CEOs who do not include all outstanding shares when calculating market capitalisation. If you know any analysts and CEOs that would like to be included on that list, let me know. So far, the only CEO I know of who accepts that definition of market cap is Dave McLauchlan, CEO of Buddy Platform.
And in the meantime, buyer beware. The true market capitalisation (not even fully diluted) of Buddy Platform is well over $64 million, at a share price of 8 cents. And you can discover an investment-grade company that uses the normal definition of market capitalisation, below…
