Basic Principles of the FTSE 100 Index
How is a company's total market value calculated?
Total market value is calculated by multiplying the share price of the company by the total number of shares they have issued.
What are some of the companies on the FTSE !)) index?
1. HSBC Holdings: £125bn - Banking 2. BP: £105.4bn - Multinational oil and gas heavyweight 3. Royal Dutch Shell 'A' 4. Royal Dutch Shell 'B' - Multinational oil and gas company incorporated in the UK 5. GlaxoSmithKline: £73.3bn - British pharmaceutical company with global reach 6. Diageo: £70.1bn - British-based company that owns some of the world's most renown alcoholic drinks brands, such as Smirnoff and Guinness
Example of company's market value calculation
Company A have 2 billion issued shares that are trading at a buy price of £2 Market value = 2 billion * 2 = 4 billion (Market value calculation is also known as the market capitalisation of the company)
What is FTSE 100?
FTSE 100 companies are the 100 largest companies trading on the UK stock market (LSE). - Largest based on company's total market value
Summary
FTSE 100 index = index of the 100 largest companies on the UK stock market - Largest companies = largest in terms or market value/capitalisation, where share price is multiplied by the number of issued shares
Who manages the FTSE indexes?
FTSE Russell, a subsidiary of the London Stock Exchange Group, manages FTSE indexes.
What is a weighted index? Why is this important?
Index points are calculated with a formula that takes size of company into account = weighted index Movements of the share price of a larger company will have a greater effect on the total value of the index compared to the movements of a smaller company's share prices.
What are issued shares?
Issued shares or shares in issue are the total number of shares that the company has sold to shareholders.
Interpret what it means when headlines state that £20 billion has been wiped off the FTSE 100
It means that the total market value of all of the FTSE companies combined are worth £20bn less than yesterday. This could be due to big declines in share prices of larger and most heavily weighted companies OR It could be a aggregate effect of many companies' share prices falling
Why does the FTSE 100 index go up and down?
Share prices of individual companies comprising of FTSE 100 index will go up or down Causes the overall FTSE 100 index to move up and down
What is a stock market index?
Stock market index - a grouping of companies The make-up of the index is determined by the total market value of a company's shares.
How is the total value of the FTSE 100 determined?
The total value of the FTSE 100 is determined by the total value of the companies that make-up the index
