# What is Market Capitalization?

Definition: The market capitalization, also known as market cap, is the total value of shares of a firm, a sector, or a market. If a company has common and preferred shares, the market cap is the sum of its common and preferred shares multiplied by the current stock price.

## What Does Market Capitalization Mean?

What is the definition of market cap? The market cap is a measure of a firm’s size. Firms are divided into:

• Large-caps: > than \$10 billion
• Mid-caps: > \$2 billion and < \$10 billion
• Small-caps: > \$300 million and < \$2 billion

The large caps are the blue chips of each sector or industry, whereas the mid-caps are usually growth-oriented firms that seek expansion. To calculate a firm’s market capitalization formula, we need to know the stock price and the number of shares outstanding.

Let’s look at an example.

## Example

Company A has 620,000,000 shares outstanding that trade at a current price of \$22.56. The company’s market capitalization is \$18.65 x 620,000,000 = \$13,987,200,000. This is a large cap company since its cap is almost \$14 billion and it is probably a well-established, maybe even a leader in its industry. Large-caps tend to dominate their industry and perform better in recessions, but they usually underperform the small-caps after a recession.

Company B has 189,635,000 shares outstanding that trade at a current price of \$12.44. The company’s market capitalization can be calculated like this \$12.44 x 189,635,000 = \$2,359,059,400. This is a mid-cap company represented with a 2.36 billion cap. This most likely is a growth-oriented company, seeking expansion in new markets.

Company C has 6,256,000 shares outstanding that trade at a current price of \$65.25. The company’s market cap is \$65.25 x 6,256,000 = \$408,204,000. This is a small-cap company with a \$408 million capitalization. This is probably a risky, quite volatile stock that underperforms both the large-caps and the mid-caps. However, small-caps tend to outperform the large caps after a recession.

## Summary Definition

Define Market Cap: Market capitalization is how much all of the outstanding shares of a company is worth at the current market price.

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