StocksGlossary
Market capitalization
Market capitalization is a company's share price times its number of shares outstanding. Definition, worked example and the small-, mid- and large-cap labels.
Also called: market cap
Quick answer
Market capitalization, or market cap, is a company's current share price multiplied by its total number of shares outstanding. It measures the market value of all the company's stock and is how stocks are sorted into small-, mid- and large-cap groups.
What does market capitalization mean?#
The SEC's Investor.gov glossary defines market capitalization as the value of a corporation determined by multiplying the current public market price of one share by the number of total outstanding shares[1]. FINRA describes it the same way: simply the current share price multiplied by the number of outstanding shares[2].
Because it uses today's price, market cap changes every time the share price moves. It measures what investors are paying for the company's stock, not what the company owns or earns.
How do you calculate it?#
Worked example
Share price is not company size
Company A's shares cost $150 and it has 40 million shares. Company B's shares cost $30 and it has 400 million shares. B has the lower share price but the larger market cap. A 2-for-1 split of A's shares would halve the price and double the share count, leaving its market cap unchanged.
| Company | Share price | Shares outstanding | Market cap |
|---|---|---|---|
| Company A | $150 | 40 million | $6.0 billion |
| Company B | $30 | 400 million | $12.0 billion |
| Company A after a 2-for-1 split | $75 | 80 million | $6.0 billion |
Figures computed in code from the stated inputs; rounded to the nearest cent or tenth.
Where will you see this term?#
Stocks are often grouped by size. FINRA notes you might see small-cap companies valued at less than $2 billion, mid-caps between $2 billion and $10 billion, and large-caps over $10 billion — or numbers twice those amounts[3]. These are conventions, not fixed rules. On the lower set of lines, Company A in the example is a mid-cap and Company B a large-cap; on lines twice as high, both would be mid-caps.
Market cap also sets the weights in a market-cap-weighted index: companies with a higher market capitalization make up a greater share of the index[4]. See stock market indexes for how that works, what a stock is for the basics, and the P/E ratio, which you can also compute as market cap divided by net income.
Sources
Numbers in brackets in the text point here. Grade A = primary source (regulator, statistics agency, law or official document).
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