Definition of Market Capitalization

Financial Terms Beginning with M

What is Market Capitalization

Market capitalization, or market cap, is a financial metric used to determine the total market value of a publicly traded company's outstanding shares of stock. It is calculated by multiplying the current market price of a single share by the total number of outstanding shares. (Market cap = Share price × Number of outstanding shares)

 

Types of Market Caps

Market capitalization is an important metric because it provides an estimate of a company's size and overall value in the market. It is used by analysts and investors to evaluate and compare companies within the same industry or sector, as well as to gauge the risk and potential return associated with investing in a particular company. A company's market cap can generally be classified into 6 key categories.

  • Mega-Caps: A mega-cap stock is the stock of a company with an exceptionally large market capitalization, which is generally above $200 billion USD. Mega-caps are often the industry leaders and among the largest and most recognizable companies in the world and usually have a long track record of stability, strong financials and significant market influence.
  • Large-Caps: A large-cap stock is the stock of a company that has a sizable market capitalization, which is generally $10 billion USD or more. Large-caps are usually well-established, stable companies with a significant market presence, substantial resources and a long track record of success.
  • Mid-Caps: A mid-cap stock is the stock of a company with a medium-size market capitalization, which is generally between $2 billion and $10 billion USD. Mid-caps occupy the space between large-cap and small-cap companies and are often in the growth phase of their business cycle.
  • Small-Caps: A small-cap stock is the stock of a company with a relatively small market capitalization, which is generally between $300 million and $2 billion USD. Small-caps are smaller companies that usually have a narrower market presence, fewer resources and less operational history as compared to mid-cap companies.
  • Micro-Caps: A micro-cap stock is the stock of a company with a small market capitalization, which is generally between $50 million and $300 million USD. Micro-caps are generally smaller, younger companies with limited resources, market presence and operational history as compared to small-cap companies.
  • Nano-Caps: A nano-cap stock is the stock of a company with a very small market capitalization, which is generally below $50 million USD. Nano-caps are among the smallest publicly traded companies and are often in the early stages of development, with limited resources, market presence and operational history as compared to micro-caps.
 

It is important to note that market cap is not a constant value, as it changes with fluctuations in share prices and the number of outstanding shares. Additionally, market cap should not be the sole factor in evaluating a company's worth or potential as an investment, as it does not provide information about the company's financial health, growth prospects or other qualitative factors.

GlobEx Markets Financial Dictionary of Terms, Phrases and Concepts

The GlobEx Markets financial dictionary is a reference resource that provides the definitions and explanations of various financial terms, phrases and concepts that are used in international finance and global investing. It includes a broad range of financial terms, such as those related to stocks, bonds, currencies, commodities, options, futures, crypto and much more.

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Related Investment Terms

Large-Cap Stock

Mega-Cap Stock

Small-Cap Stock

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