Calculate investable equity value from eligible shares, follow its effect on index weights, and avoid mixing provider factors, share classes or effective dates.
Free-float market capitalisation
Free-float market capitalisation values the portion of a company's shares treated as available to public investors under a stated methodology. It adjusts full market capitalisation for restricted or strategic holdings. A large company can therefore receive less weight in an equity benchmark than its full equity value suggests.
The adjustment concerns which shares enter the calculation. It does not change the quoted price of each eligible share.
Here P is price per share, N is shares outstanding and f is the eligible fraction. Price in USD per share times shares gives USD of market value. In this simple form, 0≤f≤1: zero eligible shares gives zero float value; all shares eligible gives the full value. Actual index calculations use the provider's specified investability factor, which may incorporate rounding and other adjustments.
Consider a fictional two-company universe at one valuation time. Both companies have one ordinary share class priced at USD10. The eligible counts below are stipulated assumptions, with no further foreign-ownership limit, factor rounding or weight cap.
Shares outstanding
Eligible shares
Eligible fraction
Full cap
Float cap
A
100 million
60 million
60%
USD1,000 million
USD600 million
B
50 million
40 million
80%
USD500 million
USD400 million
For a positive float-adjusted basket total, an uncapped capitalisation-weighted index using float values assigns each constituent the portfolio weight
wifloat=∑jPjNjfjPiNifi.
Full-cap weighting gives A 1,000/1,500=2/3 of the basket and B 1/3. Float weighting instead gives A 600/1,000=60% and B 400/1,000=40%. A remains the larger constituent, but its smaller eligible fraction reduces its relative influence.
A has 100 million outstanding shares, of which 60 million are eligible; B has 50 million outstanding, of which 40 million are eligible. At USD10 each, full caps are USD1,000 million and USD500 million, while float caps are USD600 million and USD400 million. Full weights are two thirds and one third; float weights are 60% and 40%.
Original synthetic ledger. Prices and counts refer to the same valuation time and share class; eligibility is stipulated. Blue segments show eligible shares on a common share-count scale. Each weighting method uses its own basket total.
The denominator matters. Multiplying the old weights by their float fractions does not produce final weights until those adjusted values are normalised. If every constituent had the same positive float fraction, it would cancel from numerator and denominator, leaving weights unchanged.
“Available” is a methodology decision
Free float is not today's trading volume, shares currently offered for sale, or a promise that a large order can execute without moving the price. It estimates an investable share base; liquidity still depends on trading conditions.
Index providers classify holdings using disclosures and their own rules. Strategic corporate stakes, government holdings, insider stakes and lock-ups can affect the result, but their treatment and thresholds vary. FTSE Russell's October 2026 rules distinguish shareholder categories and also apply more restrictive legal limits where relevant. There is no universal ownership percentage at which every holder becomes excluded.
Provider factors also need not equal an unrounded ownership estimate. MSCI's August 2026 methodology, Appendix VI, specifies rounding intervals for its Foreign Inclusion Factor and treatment of foreign ownership limits. Check the applicable methodology version rather than transferring another provider's factor bands to a new index.
Share-class treatment matters too. S&P DJI's September 2026 methodology explains that treatment varies across its indices; where multiple classes are included, each class is float-adjusted individually. Match the price, outstanding count and factor to the same class. A company-wide count paired with one class's price can distort the result.
Apply the adjustment once
A vendor field labelled “float-adjusted market cap” already contains the float adjustment. In the example, multiplying A's USD600 million by 60% again would produce USD360 million and understate the intended USD600 million value. Either start with full cap and apply the factor, or use the supplied adjusted cap consistently.
Keep effective dates aligned as well. A newly effective float factor can change index weights even with unchanged prices; using that future factor in an earlier backtest introduces look-ahead bias. Conversely, a mechanical split that doubles both outstanding and eligible shares while halving price preserves both capitalisations.
For the broader connection to index maintenance, SelfMadeQuant's Equities, Indices and Corporate Actions covers float-based weights, splits and rebalance flows. The public page provides a preview; the full lesson requires membership.
