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What is Market Capitalization?

Market capitalization, also known as market cap, is the total value of shares that a public company issues. It is calculated by multiplying the number of shares outstanding by the price per share. Shares outstanding are all the financial assets or shares of a corporation that have been authorized, issued and bought by investors and are held by them.

It is one of the main factors in determining stock valuation, and the investors’ perception of how much a company is worth. However, it is not a factor used in calculating net sales or total asset figures.

Market capitalization is an indicator of the returns and the risk for a particular company’s stock. Therefore, it is often used by investors as a tool to help pick stocks that can meet their risk level and diversification goals.

market capitalizationThe top three are tech companies.

The stocks of large companies are referred to as large-cap, those of medium companies are known as mid-cap, and small-cap are those of small companies.

Approximate categories of market capitalization:

  • Large Cap: $10 billion and more
  • Mid Cap: between $2 billion to $10 billion
  • Small Cap: less than $2 billion

Example of calculating a company’s market capitalization:

If a company has 40 million shares outstanding and each share is worth $50, then the company’s market capitalization is $2 billion (40,000,000 x $50 per share).

Note:

Some investors claim that a more comprehensive measure of a company’s net value is enterprise value (EV), which accounts for factors such as debt, preferred stock, and more.

List of public companies by market capitalization

On June 16, 2015, the largest public companies by market capitalization (in billions USD) were (source: dogsofthedow.com):

1. Apple $731.1
2. Google $371.8
3. Microsoft $370.7
4. Exxon Mobil $354.6
5. Berkshire Hathaway $344.6
6. Wells Fargo $294.6
7. General Electric $274.3
8. Johnson & Johnson $272.8
9. China Mobile $263.2
10. JPMorgan Chase $253.7
11. Novartis $245.0
12. Wal-Mart Stores $233.0
13. PetroChina $229.3
14. Facebook $227.6
15. Procter & Gamble $214.6
16. Pfizer $209.6
17. Amazon.com $199.0
18. Anheuser-Busch InBev SA/NV $195.1
19. Oracle $194.9
20. Verizon $193.4

Market capitalization can also refer to the total value of shares in either one or several stock markets.

The global stock market’s capitalization was $69 trillion in 2014, representing nearly 24% of the world’s financial asset value.

Video – Understanding Market Capitalization