Market Capitalization

Market capitalization or “Market cap” refers to the total market value of all the publicly traded shares of that company.  Basically you take the number of shares available for a company, multiply by the stock price and that gives you the market capitalization.  For example if a company has 5,000 outstanding shares that are worth $40 each – the total value of the shares of $200,000 which is also the market capitalization.

It’s important to note that market capitalization doesn’t necessarily have anything to do with the actual value of the company assets – but rather the value of ownership which includes all the assets of the company plus any future expectations of profits.

It’s possible to have a company that doesn’t own any assets but has a great idea for making money – investors might value this company highly.  Google is a good example of a company that has a market cap far higher than its assets because its investors are assuming the company will be able to increase its profits at a rapid pace.

Over $5 billion capitalization. Companies are usually classifieds either large cap, medium cap, small cap, or micro cap, depending on their market capitalization, but the dividing lines are somewhat arbitrary. As a general guideline, the market capitalization is $5 billion or more for large caps, $1 billion to $5 billion for medium caps, $250 million to $1 billion for small caps, and less than $250 million for micro caps. When calculating the market caps of foreign companies who have issued ADRs in the US, only the outstanding ADR shares are considered, not the shares issued by that company in other countries.