Market Capitalization Formula: How to Calculate Market Cap

Market capitalization dictates the valuation of a company based on its number of outstanding shares. The stock market determines the market price of these remaining shares. To determine the market capitalization, multiply the number of purchasable shares for a public company by the current share price. A higher stock price means a higher valuation.

Tracking market capitalization over weeks and months can help you identify companies experiencing rapid growth that could make for suitable investments. Large companies can be relatively safer to invest in because of their reliability, while smaller companies can be less reliable.

Market cap is a shorthand for market capitalization. A company’s market cap determines its value on the basis of the number of shares still available for stock trading multiplied by the market value of each share. There are three market cap categories for companies:

• Small-cap: With the smallest market cap, small-cap companies equal small-cap stocks, which are worth anywhere from $300 million to $2 billion.
• Mid-cap: Sitting in the middle range are mid-cap companies. Mid-cap stocks are worth anywhere from $2 billion to $10 billion.
• Large-cap: Companies within established industries with the highest valuations are large-cap companies. Large-cap stocks are worth $10 billion or more.

Market cap is a simple calculation in understanding investment riskiness. It is one of the fundamentals of the stock market and is easy to calculate by multiplying the total number of unsold shares by the current market price. For example, a company with 10 million outstanding shares and a share price of $500 has a market cap of $5 billion. You can also write this as: Number of unsold shares x Current market price per share = Market cap.

Market cap is a metric that can help you evaluate the size of a company, which can play into a trader’s investment strategies. Categorizing businesses into company size makes it easier to assess the company’s market share performance based on current prices. Generally, companies with a larger market cap are relatively safer for investing because they will have long histories in the market and will be in more established fields; younger companies, or startups, might suffer from greater volatility.

Market capitalization can also determine the value of company acquisitions. As in any stock market investment, it is a game of chance as many factors influence the market’s temperament, including employment (or unemployment), inflation, and global affairs. Evaluating a company’s market capitalization is essential, as is diversification or creating a dynamic portfolio with stock in several businesses across varying industries.

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