[mar-kat ka-pa-ta-la-‘za-shan]
Market capitalization, or “market cap” for short, is a measure of the value of a company that is publicly traded on a stock exchange.
What is Market Capitalization (MC)?
MC, also known as “market cap,” is a financial metric used to determine the total value of a company that has shares listed on a stock exchange and is publicly traded. It is calculated by multiplying the current market price of one share of the company's stock by the total number of outstanding shares. This metric is commonly used to compare companies and assess their relative size and performance in the market.
Key Takeaways
- Market capitalization is a measure of the value of a publicly traded company, calculated by multiplying the number of outstanding shares by the current market price per share.
- Market capitalization is a widely used metric to compare the size and performance of different companies. Generally, larger MC companies are more established and stable, while smaller MC companies may be higher risk but offer more potential for growth.
- Market capitalization is affected by changes in a company's share price and the number of outstanding shares. Therefore, it can fluctuate rapidly in response to changes in market conditions, investor sentiment, or other factors.
- Market capitalization can be used in combination with other metrics, such as earnings or revenue, to help investors evaluate a company's financial performance and potential investment value.
- Market capitalization is used by stock exchanges to classify companies into different categories, such as large-cap, mid-cap, and small-cap, which can impact the trading rules and regulations for those companies.
Example of Market Capitalization
XYZ Corporation has 10 million shares of stock outstanding, and the current market price per share is $50. To calculate XYZ Corporation's MC, we would multiply the number of outstanding shares (10 million) by the current market price per share ($50), which gives us a MC of $500 million.
This means that, at the current market price, investors value XYZ Corporation at $500 million. If the price per share increases, the MC would also increase, making the company more valuable. Conversely, if the price per share decreases, the MC would decrease, indicating a decrease in the company's overall value in the market.
Back to Glossary.
