Market Capitalization

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Term Definition
Market Capitalization

The total value of a company's outstanding shares of stock, calculated by multiplying the share price by the number of shares outstanding. 

Market capitalization, often abbreviated as market cap, refers to the total dollar market value of all a company's outstanding common shares. It's a simple but key metric used to gauge a company's size and relative importance within the market.

Here's a breakdown:


Market Cap = Share Price per Share x Number of Shares Outstanding

For example, if a company has 100 million shares outstanding and each share is trading at $50, its market cap would be $5 billion (100 million shares x $50/share).


  • Company size: Higher market cap generally indicates a larger and more established company.
  • Investor interest: Companies with larger market caps tend to attract more investor attention and trading activity.
  • Industry ranking: Market cap can be used to rank companies within their industry or the overall market.
  • Investment decisions: Investors may consider market cap alongside other factors when making investment choices.

However, it's important to note that market cap has limitations:

  • Doesn't reflect profitability: A high market cap doesn't guarantee a profitable company.
  • Doesn't consider debt: It only reflects the value of equity, not the company's overall financial health.
  • Can be volatile: Market cap fluctuates with changes in share price.

Additional notes:

  • Market cap is often categorized into large-cap, mid-cap, and small-cap based on predefined size ranges.
  • Some investors focus on specific market cap segments for their investment strategies.
Synonyms: Market Cap