📈 Market capitalization, or “market cap,” is one of the most common ways to understand a company’s overall value on the stock market. It’s simple to calculate and powerful for comparison.
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💡 What is Market Capitalization?
Market capitalization is the total dollar value of a company’s outstanding shares of stock. It gives investors a quick snapshot of a company’s size and investment potential.
🧮 Market Capitalization Formula
Use this formula to calculate market cap:
Market Cap = Share Price × Number of Outstanding Shares
- Share Price is how much one share costs right now.
- Outstanding Shares is the total number of shares in circulation among shareholders.
🏷️ Market Capitalization Categories
| Market Cap Range | Category |
|---|---|
| Under $2 billion | Small-cap |
| $2 billion to $10 billion | Mid-cap |
| Over $10 billion | Large-cap |
These labels help investors sort companies by size and risk profile.
📊 Why Market Cap Matters
- Compare Companies: Market cap gives you a quick way to size up competitors.
- Risk & Growth: Smaller caps = more growth potential and more risk. Bigger caps = more stability.
- Index Inclusion: Market cap determines if a stock makes it into big indexes like the S&P 500.
✏️ Example Calculation
Let’s say a company has 50 million shares, and each share trades at $40:
Market Cap = 50,000,000 × 40 = $2,000,000,000
This would make it a mid-cap company.