Market Capitalization

market-capMarket capitalization (or market cap) is a useful descriptive metric for stock market investors. It is a metric that describes the size or total market value of a corporation. Market capitalization is calculated by multiplying the current share price by the total number of shares outstanding. For example, if the current share price for a given stock is $100.00 and there are 10 shares outstanding for the corporation, then the market capitalization for the corporation would be $1,000.00. Below is one example of a breakdown of classifications based on market cap:

  • Mega Cap
  • Large Cap
  • Medium Cap
  • Small Cap
  • Micro Cap

To a stock market investor, market capitalization helps with a variety of important aspects of investing. One of the most notable aspects is in the development of investment portfolios. Although neither a mega cap nor a micro cap corporation can be classified as a good or bad investment without looking at other metrics, market cap can help by giving an investor insight into the profit potential and risk of an investment. Generally speaking, mega caps have less risk and less profit potential while micro caps have more risk and more profit potential.