Question

When calculating free-float capitalization, must the shares held by long-term strategic government investors or founding insiders be included or excluded from the total float?

Accepted Answer

When calculating free-float capitalization—the market value of a company’s shares that are readily available for trading by the general public—you must exclude shares held by long-term strategic government investors and founding insiders. These groups are considered non-float because their shares are typically held for long-term influence rather than active trading. Think of a company’s total shares like a pizza: the free float is only the slices available for anyone to buy, while the slices held by founders and governments are like pieces permanently reserved for a specific table, meaning they aren&#x27;t part of the active supply. By removing these locked-up shares, the free-float calculation provides a more accurate picture of the liquidity, which is the ease with which a stock can be bought or sold without significantly affecting its price. If these restricted shares were included, the capitalization figure would artificially inflate the company&#x27;s market accessibility and misrepresent the volume of shares actually circulating in the public market.

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When calculating free-float capitalization, must the shares held by long-term strategic government investors or founding insiders be included or excluded from the total float?

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