Market Capitalization

Market Capitalization (Market Cap) is a measurement of business value based on share price and number of shares outstanding. It generally represents the market's view of a company's stock value and is a determining factor in stock valuation.

For example, if a company has 1.5 million shares outstanding at a share price of $25, its market cap is $37.5 million (1.5 million x $25). Companies can be categorized based upon the size of their market capitalization.

There are five basic groups based on a stock's percentile within total market cap of all stocks: mega-cap (the top 40% of stocks by market cap), large-cap (the next 30% of stocks by market cap), mid-cap (the next 20% of stocks), small-cap (the next 7% of stocks), and micro-cap (the smallest 3% of stocks). Market cap is not always an accurate indication of value because it does not account for debt and other factors.

Formula

Market Capitalization = Number of Shares Outstanding x Price