What is market capitalization?
Market capitalization, or market cap, is the total value the stock market places on a company: its share price multiplied by the number of shares outstanding. A company with 10 million shares priced at $50 each has a market cap of $500 million. It represents what the whole company is worth at today's share price.
Market cap matters because it, not the share price alone, tells you how big a company really is. A $500 stock can belong to a smaller company than a $10 stock, depending on how many shares exist. Investors use market cap to compare companies of different sizes and to sort them into small-, mid-, large-, and mega-cap groups, which tend to behave differently.
Size is a rough guide to risk and growth potential. Larger companies are usually more established and steadier, while smaller ones can grow faster but swing more sharply. Market cap is also the starting point for enterprise value, which adds debt and subtracts cash to estimate what it would take to acquire the whole business.
| Band | Rough range |
|---|---|
| Small cap | Under about $2 billion |
| Mid cap | About $2-10 billion |
| Large cap | About $10-200 billion |
| Mega cap | Above about $200 billion |
Frequently asked questions
Is market cap the same as a company's value?
It is the value of the equity, the shares, at the current price. A fuller measure of what it would take to acquire the business is enterprise value, which adds net debt to market cap, because an acquirer takes on the company's debt as well.
Does a low share price mean a company is cheap?
No. Price per share depends on how many shares exist, so it says nothing about size or value on its own. Market cap, and measures like the P/E ratio, give a far better sense of whether a company is cheaply or expensively valued.