Market capitalization, or market cap, is the total value the stock market places on a company. It is one of the first numbers to check when you look at a stock, because it tells you how big the business is and how it is likely to behave.
How market cap is calculated
Market cap = share price × shares outstanding. A company with 1 billion shares trading at $50 has a market cap of $50 billion. Because the share price changes all day, so does market cap.
A high share price doesn't mean a company is big. A $500 stock with 10 million shares ($5 billion) is far smaller than a $20 stock with 5 billion shares ($100 billion). That's why market cap, not share price, is the right way to compare company size.
Size categories
There are no official cut-offs, but these ranges are widely used:
- Mega cap: above $200 billion
- Large cap: $10 billion to $200 billion
- Mid cap: $2 billion to $10 billion
- Small cap: $300 million to $2 billion
- Micro cap: below $300 million
Why size matters
Large caps tend to be established, profitable businesses with steadier share prices, and many pay dividends. They dominate indexes like the S&P 500.
Small caps have more room to grow but are usually more volatile, more sensitive to the economy and less widely followed by analysts. Their shares can also be harder to trade in size.
Mixing sizes is one way to diversify a portfolio. You can filter by size with the market cap options in the stock screener.
Market cap vs. enterprise value
Market cap only measures the value of the company's shares. Enterprise value (EV) adds debt and subtracts cash, which gives a better picture of what it would cost to buy the whole business. Two companies with the same market cap can have very different enterprise values if one carries a lot of debt. Valuation ratios such as EV/EBITDA use enterprise value for this reason.
Market cap is not the same as value
Market cap tells you what investors are paying today, not what a company is truly worth. To judge that, compare it against earnings (the P/E ratio), free cash flow and growth, or estimate intrinsic value with our DCF calculator.
This article is educational and not investment advice.
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