Market capitalization, or market cap, is a measure of a companys size and value. It refers to the total value of a companys outstanding shares of stock, which includes publicly traded shares plus restricted shares held by company officers and insiders. To calculate market cap, you take the total number of a companys shares outstanding and multiply that figure by the companys current stock price. For example, if a company has 5 million shares outstanding and its current stock price is $20, it has a market capitalization of $100 million.
Market cap is an important metric for investors because it allows them to evaluate a company based on how valuable the public perceives it to be. It can also inform the level of risk an investor might expect when investing in a companys stock, as well as how much their investment might return over time. Public companies are grouped by size based on their market capitalizations, with large-cap stocks having market caps of more than $10 billion, mid-cap stocks having market caps between $2 and $10 billion, and small-cap stocks having market caps between $300 million and $2 billion.
Market cap can be a helpful metric in determining which stocks to invest in and how to diversify a portfolio with companies of different sizes. However, its important to keep in mind that market cap is the perceived value of a company because stock price is determined by investors, and it isnt necessarily the actual value of a company and all of its parts. Therefore, its a good idea to look at a number of metrics when considering an investment.
