Market Capitalization (Market Cap)
The total value of a company's outstanding shares, calculated by multiplying share price by the number of shares.
What You Need to Know
Market cap tells you how much the entire company is worth according to the stock market. It's the price tag if you wanted to buy every single share.
The Formula: Market Cap = Share Price × Number of Outstanding Shares
Example:
- Apple: 15.5 billion shares × $180/share = $2.79 trillion market cap
The Categories:
Large-Cap ($10B+):
- Examples: Apple, Microsoft, Amazon
- Pros: Stable, established, lower risk
- Cons: Slower growth potential
Mid-Cap ($2B-$10B):
- Examples: Zoom, Etsy, Datadog
- Pros: Growth potential with some stability
- Cons: More volatile than large-cap
Small-Cap ($300M-$2B):
- Examples: Many regional banks, biotech startups
- Pros: High growth potential
- Cons: High risk, can go bankrupt
Micro-Cap (under $300M):
- Pros: Massive upside potential
- Cons: Extreme volatility, liquidity issues
Why It Matters: Market cap affects your portfolio's risk level. A portfolio of 100% small-cap stocks is far riskier than 100% large-cap. Most financial advisors recommend a mix across all sizes for diversification.
Sources & References
This information is sourced from authoritative government and academic institutions:
- investor.gov
https://www.investor.gov/introduction-investing/investing-basics/glossary/market-capitalization
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Related Terms in Investment Analysis
Appreciation
The increase in an asset's value over time, whether it's real estate, stocks, or other investments.
Asset Class
A group of investments with similar behavior, risk, and regulatory profiles (e.g., stocks, bonds, cash).
Bond
A fixed-income investment where you loan money to a government or corporation in exchange for regular interest payments.
Bond Yield
The return an investor earns on a bond, expressed as a percentage, which can be calculated as current yield (annual interest ÷ current price) or yield to maturity (total return if held until maturity).
Capital Gains Tax
Tax on profits from selling investments like stocks, bonds, or real estate.
Capital Loss
A loss realized when you sell an investment for less than you paid for it, which can offset capital gains for tax purposes.