Revision and practice on calculating market capitalisation, dividends per share and dividend yield.
Key vocabulary: Market Capitalisation, Public Limited Company, Dividend, Large-cap company
| Reasons to buy shares | Influences on Share Price |
|---|---|
| To make money (dividends). To make a quick return on investment, better than a bank's interest rates. | Profitability of company. Bad PR / disaster. |
Market capitalisation (market cap) gives a business (PLC) a valuation. It is calculated by:
Market capitalisation = Current Share Price × Number of Shares Issued
Example: If a company's share price is £5 and it has 200 million shares issued, its market cap is £1 billion.
Market capitalisation is useful for comparing companies, but it has important limitations too.
Key points for analysis:
Dividends per share tells you how much money a shareholder receives for each share they own.
Dividends per share = total dividends paid / number of issued shares
Example: A company pays £10 million in dividends and has 100 million shares. Dividends per share = 10p.
Dividend yield expresses this as a percentage of the share price, making it easier to compare returns across different companies.
Dividend yield = dividends per share / current share price × 100
A higher dividend yield means a bigger return relative to the share price — but it does not always mean a better investment.
Dividend yield is a useful tool for investors, but it must be interpreted carefully. A high yield is not always good news, and a low yield is not always bad.
What to consider:
Market capitalisation and dividend yield are not just investor tools. They affect how a business is perceived, how it raises finance and the strategic decisions it makes.
Key implications:
Nvidia became the first chip company to reach a $5 trillion market capitalisation in April 2026, and has repeatedly contested the title of world's most valuable company with rivals such as Apple and Microsoft during 2026. Despite this huge valuation, Nvidia's dividend yield remains very small (well under 1%) — the company reinvests the vast majority of its profits into research and expanding AI chip production rather than paying it out to shareholders as dividends.
Source: verified via search, September 2026 — CNBC and Intellectia.ai coverage of Nvidia's 2026 market capitalisation milestones.
Vodafone significantly reduced the dividend it pays shareholders in the mid-2020s, as part of a wider turnaround plan to reduce debt and reinvest in its network and core markets. A dividend cut like this often unsettles income-focused shareholders in the short term, but can leave a business in a stronger financial position for the future — showing the trade-off between rewarding shareholders now and reinvesting for long-term survival and growth.
Source: verified via search, September 2026 — dividend history data from stockanalysis.com and Digrin.
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1. How is market capitalisation calculated?
2. What does dividend yield measure?
3. A very high dividend yield can sometimes be a warning sign. Why?
4. Why might a fast-growing technology company pay a low or zero dividend?
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Tap the word or phrase that correctly completes each formula.
1. Market capitalisation = Current Share Price × ____.
2. Dividends per share = total dividends paid ÷ ____.
3. Dividend yield = dividends per share ÷ current share price × ____.
4. The 100 largest companies by market cap on the London Stock Exchange make up the ____.
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Short, snappy recall questions — tap to reveal the answer.
Current share price × number of shares issued.
A share of profit paid to shareholders.
Dividends per share ÷ current share price × 100.
Any one of: shares sold on the Stock Exchange, anyone can buy shares, limited liability.
Tap a term, then tap its matching definition.
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Connecting to finance (3.1.4): Paying dividends is one way a PLC rewards shareholders, but retained profit (profit kept in the business rather than paid out) is often a cheaper source of finance than issuing new shares or borrowing, since it has no interest cost and doesn't dilute ownership. Strong students should be able to weigh dividend payments against retained profit as competing uses for the same pool of profit.
A common mistake is assuming a high market capitalisation always means a company is highly profitable. Market cap reflects what investors think a company is worth — including their expectations about future growth — not necessarily its current profit. A loss-making company can still have a very high market cap if investors believe it will be highly profitable in future.
Before using this: AI tools can get facts or mark scheme details wrong, and quality varies by tool. Always check anything factual against your notes or ask your teacher.
Give me the share price and number of issued shares for two made-up PLCs. Ask me to calculate each one's market capitalisation and tell you which one is larger, then check my working.