what is market cap

Market capitalization, or market cap, is a measure of a companys size based on the total value of its outstanding shares of stock. It is calculated by multiplying the number of outstanding shares by the current market price of one share. Market cap is used to determine a companys size and is often used to evaluate its financial performance compared to other companies. Companies are typically divided into three categories based on market cap: large-cap ($10 billion or more), mid-cap ($2 billion to $10 billion), and small-cap ($300 million to $2 billion) . Market cap is also used to determine a companys relative value on the open market and the markets perception of its future prospects. It is important to note that market cap only measures the equity component of a companys capital structure and does not reflect managements decision as to how much debt (or leverage) is used to finance the firm. A more comprehensive measure of a firms size is enterprise value (EV), which gives effect to outstanding debt, preferred stock, and other factors.