Market capitalization

Definition: The total amount of money it would take to purchase all of the outstanding shares of a corporation. It can be computed by multiplying the total number of shares outstanding by the current price per share.Example: GHI Corporation has 1,000,000 shares outstanding. Its share price is $20. Its market capitalization is 1,000,000 * $20, or $20,000,000.

Investeach explains: When a commentator refers to how valuable or big a company is, he or she is referring to its market capitalization. Because it takes a while to get this term out of one’s mouth, it is nearly always shortened to “market cap”. Generally speaking, companies which have a market capitalization of…

… less than $2 billion are referred to as small caps.

… between $2 billion and $10 billion are referred to as mid caps.

… over $10 billion are referred to as large caps.

Note that companies can go public and have a market cap of as little as a few hundred million. These especially small companies have been referred as micro caps. On the other end of the scale, we have behemoths like Apple, Google, Facebook, Microsoft and Amazon, all with market caps in the hundreds of billions. Some refer to these as mega caps.

Mutual fund companies offer funds for investors who want to invest in companies of a certain size. Not surprisingly, these are known as small cap funds, mid cap funds, etc.

Finally, the larger the corporation, generally, the safer it is as an investment. The bigger the Market capitalization a corporation has, the more it has proven to offer products and services that businesses and consumers value. Of course, with the added size comes greater financial resources, market share, and brand value.

Riddle me this:

1. How is market capitalization computed?
2. What easier-to-say abbreviation do we give to the term market capitalization?
3. What capitalization size categories are generally recognized?
4. What is the general relationship between the Market capitalization and the risk?

Also known as: Market cap, Market value

Related terms: Shares outstanding.