Market Capitalization: A Simple Way to Compare the Size and Value of Companies
Market capitalization, often referred to as “market cap,” is a financial metric that measures the total value of a company’s outstanding shares of stock in the open market. It is calculated by multiplying the current market price per share by the total number of outstanding shares. In other words, it represents the total dollar value that investors are willing to pay for ownership in the company.
Market Capitalization = Current Market Price per Share × Total Outstanding Shares
Market capitalization is commonly used to classify companies into different categories based on their size within the financial markets. The most common classifications include:
- Mega Cap: $40bln+
- Large-Cap: $10bln-40bln
- Mid-Cap: $3bln-10bln
- Small-Cap: $1bln-$3bln
- Micro-Cap: less than $1bln
Trading Opportunities & Market capitalization
Mid cap stocks tend to have higher volatility and potential return than mega cap stocks since earnings growth is greater in Mid cap stocks (e.g., 40% growth) than in large and mega cap stocks.
Mid cap stocks are ideal for trading since they have proven business models unlike small caps and micro caps.