Market Capitalization (Market Cap)
Explanation: Market capitalization, or market cap, is the total market value of a company’s outstanding shares of stock. It is calculated by multiplying the current share price by the total number of outstanding shares. Market cap is used to categorize companies into large-cap, mid-cap, and small-cap, reflecting their size, risk, and investment potential.
Example: If a company has 50 million shares outstanding and the current stock price is $20, its market capitalization is $1 billion (50 million x $20). This categorizes the company as a mid-cap stock.
Reference Link: For more information on market capitalization, visit Investopedia’s Market Capitalization.
FAQs:
- Why is market cap important?
- It provides a quick measure of a company’s size and market value, helping investors assess risk and investment potential.
- How are companies categorized by market cap?
- Companies are typically categorized as large-cap (over $10 billion), mid-cap ($2 billion to $10 billion), and small-cap (under $2 billion).
- Does market cap reflect a company’s actual value?
- Market cap reflects the market’s perception of a company’s value, not necessarily its intrinsic value.
- Can market cap change?
- Yes, market cap fluctuates with changes in stock price and the number of outstanding shares.
- What is the difference between market cap and enterprise value?
- Market cap measures the equity value of a company, while enterprise value includes debt and subtracts cash to provide a more comprehensive valuation.