Market capitalization is the total market value of a company's outstanding shares. It is calculated by multiplying the current share price by the total number of shares outstanding. Market cap is the most common way to measure a company's size.
Companies are classified by market cap: mega-cap (over $200 billion), large-cap ($10–$200 billion), mid-cap ($2–$10 billion), small-cap ($300 million–$2 billion), and micro-cap (under $300 million). Each category carries different risk and growth characteristics.
Market cap influences index inclusion, institutional investment decisions, and risk profiles. Large-cap stocks tend to be more stable and pay dividends, while small-cap stocks often offer higher growth potential but greater volatility.
It is important to note that market cap alone does not tell you if a stock is expensive or cheap. A company with a $1 trillion market cap could be undervalued if its earnings justify that price, while a $500 million company could be vastly overpriced.
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