Market capitalization, often abbreviated as "market cap," is a key metric used to measure the size of a publicly-traded company. It's calculated by multiplying the total number of shares outstanding by the current market price per share. Here's a breakdown of what it means and why it's important.
What is Market Capitalization?
- Total Value: It represents the total value of all the company's shares available on the market.
- Publicly-Traded Companies: Only companies that have gone public have a market capitalization.
- Market Price: The current price per share is based on supply and demand in the stock market.
Why is Market Capitalization Important?
- Size: It's a good indicator of the size of the company.
- Investment: Investors use it to compare companies and decide where to invest.
- Market Influence: Larger companies often have more influence on the market.
Types of Market Capitalization
- Small Cap: Companies with market caps of $300 million to $2 billion.
- Mid Cap: Companies with market caps of $2 billion to $10 billion.
- Large Cap: Companies with market caps of $10 billion or more.
- Megacap: Companies with market caps of $200 billion or more.
How to Calculate Market Capitalization
- Formula: Market Cap = Number of Shares Outstanding x Current Market Price Per Share
- Example: If a company has 100 million shares outstanding and the current market price is $50, the market cap is $5 billion.
More to Read
For a deeper dive into market capitalization and other financial metrics, check out our Investment Basics guide.
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