Market capitalization, or "market cap," is the total dollar value of a company's outstanding shares. It's calculated by multiplying the current stock price by the number of shares outstanding.
Formula: Market Cap = Stock Price × Number of Outstanding Shares
Market Cap Categories:
Large-Cap: Companies worth $10 billion or more - Usually well-established, stable companies - Examples: Apple, Microsoft, Amazon
Mid-Cap: Companies worth $2-10 billion - Growing companies with moderate risk - Balance between growth potential and stability
Small-Cap: Companies worth $300 million - $2 billion - Higher growth potential but more volatile - Often newer or specialized companies
Micro-Cap: Companies worth less than $300 million - Highest risk and potential reward - Very volatile and less liquid
Why Market Cap Matters:
Market cap helps investors understand a company's size and investment risk profile. It's also used to categorize stocks and compare companies within the same industry.
Important Note:
Market cap reflects what investors are willing to pay for the company, not necessarily its intrinsic value. A company's market cap can change throughout the trading day as its stock price fluctuates.