Market Capitalization

Definition

The term market capitalization is used to describe the total value of a public company's shares of stock outstanding; this includes both common stock as well as preferred shares.

Calculation

Market Capitalization = Market Price per Share x Shares Outstanding

Explanation

Also known as market cap and MCAP, market capitalization is commonly used by investors to describe the size of a company.  There are a number of categories used as market capitalization break points.  Unfortunately, there isn't a standard definition for these cut off points.  Suggested values for these categories appear below:

  • Large Cap:  in excess of $10 billion
  • Mid Cap:  between $1 and $10 billion
  • Small Cap:  under $1 billion

Some financial institutions include more granular categories such as:

  • Mega Cap:  in excess of $100 billion
  • Micro Cap:  between $10 and $100 million
  • Nano Cap:  under $10 million

Market price per share is used in the calculation of market capitalization; therefore, it's a measure of value assigned to the company by investors.  As such, market cap takes into account factors such as earnings per share as well as the company's projected earnings growth rate.

Example

The current market price of Company A's common stock is $88.24.  Company A has 693,000 shares of common stock outstanding.  Company A has not issued shares of preferred stock.  The market capitalization of Company A would be:

= $88.24 x 693,000, or $61,150,320

Related Terms

price to book, Treasury Stock, book value per share, earnings per share, book value