Market capitalization
The total market value of a company’s outstanding shares, found by multiplying the share price by the number of shares.
What it means
Market capitalization shows how much the stock market values a company as a whole. It is used to sort companies into size groups, commonly called large-cap, mid-cap and small-cap. The cutoffs for each group are not official and vary by index provider, but large-cap companies are typically worth many billions of dollars.
Size matters to investors because companies of different sizes have tended to behave differently: larger firms are often more established and less volatile, while smaller firms may grow faster but swing more and fail more often. Many indexes are cap-weighted, meaning the biggest companies make up the largest share of the index. Market cap reflects share price only and is not the same as a company’s total value including debt.
Formula
Market cap = Share price × Shares outstanding
- Share price = current market price of one share
- Shares outstanding = total shares held by all shareholders
Example
For example, a company with 500 million shares trading at $40 each has a market capitalization of $20 billion.
How it’s used
- Classifying stocks and funds as large-, mid- or small-cap
- Understanding how index funds weight their holdings
- Comparing the size of companies
Related terms
Educational information only, not financial, tax or legal advice. Rules, limits and rates change; check the IRS, your lender or plan, or a qualified professional before acting.