For example, Microsoft (MSFT) closed at $418.40 on July 25, 2024, and has 7.43 billion shares outstanding. The stock’s market capitalization is $3.1 trillion, a metric derived by multiplying the price by the number of shares. Meta Platforms (META), formerly Facebook, trades on the Nasdaq at $453.41 at the close on July 25, 2024, with 2.21 billion shares outstanding, for a market capitalization of $1.21 trillion. Therefore, any significant change in a stock price results in an equal percentage change in the company’s market cap. This is one of the reasons why investors are so concerned with stock prices. A $0.10 drop in a stock price results in a $100,000 loss on paper for a shareholder with one million shares.
Market Capitalization: What It Is, Formula for Calculating It
- A company with 20 million shares selling at $100 a share has a market cap of $2 billion.
- Market cap considers all of a company’s outstanding shares, and is a common measure used to describe a company’s value.
- Therefore, enterprise value is independent of the capital structure, unlike equity value.
Market capitalization is a fundamental piece of information needed to make investment decisions, and gives a big-picture view of the value of a company. However, market cap can fluctuate greatly day-to-day, especially in smaller companies, as the stock bounces around. Market capitalization is a term used to describe the size of a company based on the total value of the company’s stock. Market capitalization is an important data point for making informed investment decisions, managing return expectations and building a well-balanced portfolio. They are not as well-established as large-cap companies, so there’s more risk connected with investing in them; however, they are supposed to grow rapidly in the nearest future.
Shares are often over- or undervalued by the market, meaning the market price determines only how much the market is willing to pay for its shares. A company with 20 million shares selling at $100 a share has a market cap of $2 billion. A second company with a share price of $1,000 but only 10,000 shares outstanding, has a market cap of $10 million. Some traders and investors, mostly novices, can mistake a stock’s price to be an accurate representation of that company’s worth, health, and/or stability.
Market capitalization: What it is and how to calculate it
Outstanding shares are shares that have been issued and sold to shareholders, including those held by insiders and institutional investors. The calculation does not include treasury shares, which are shares of the company that it has repurchased. Market cap is the total dollar value of a company’s outstanding shares of stock.
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That said, there is a place for mid- and small-caps in certain portfolios. It’s the smaller players where you can sometimes find value,” says Holmes Osborne, principal at Osborne Global Investors in Missouri. Let’s analyze an example of a company that has been on the market for a few years. We’re aiming to determine whether it’s a large-cap, medium-cap, or small-cap company. A simple example of the difference between equity value vs enterprise value is with a house.
Some of the companies may or may not be industry leaders, but they may be on their way to becoming one. For example, the social media company Reddit (RDDT) is a mid-cap company, with a market cap of $9.84 billion as of the market close on June 18, 2024. Market Capitalization is calculated by multiplying the share price by the total number of shares. Market capitalization is the number of shares outstanding multiplied by the price of the stock. Companies are categorized according to this metric as a big cap, mid-cap, or small cap, which is an easy way of identifying their relative overall size.
In preparing for this process, a company pays a third party (typically an investment bank) to determine the value of a company, and recommend how many shares to offer to the public and at what price. For example, a company whose value is estimated at $100 million may want to issue 10 million shares at $10 per share. Market Capitalization (Market Cap) is the most recent market value of a company’s outstanding shares.
Importance of Market Capitalization
For example, if a company has 1 million shares of outstanding stock and the stock currently trades at $50 per share, then its current market cap is $50 million. Market cap fluctuates with a company’s share price, and so can change over time or even over the course of a single trading day. Market capitalization, how many stocks should you own or “market cap,” represents the total dollar market value of a company’s outstanding shares of stock. Investors use this figure to determine a company’s size instead of sales or total asset value. In an acquisition, the market cap helps determine whether a takeover candidate represents a good value for the acquirer.
Market cap is calculated by multiplying a company’s outstanding shares by the current market price of one share. Since a company has a given number of outstanding shares, multiplying X with the per-share price represents the total dollar value of the company. The MarketBeat market cap calculator automatically calculates a stock’s current market cap after you enter the current stock price and the number of outstanding shares.
Mid-cap stocks range from $2 billion to $10 billion in market cap, and this group of companies is considered to be more volatile than the large-cap and mega-cap companies. Companies that are considered large-cap have a market cap between $10 billion to $200 billion. Broadly speaking, prices in the stock market are driven by supply and demand.
Yarilet Perez is an experienced multimedia journalist and fact-checker with a Master of Science in Journalism. She has worked in multiple cities covering breaking news, politics, education, and more. However, the fact that Company C’s enterprise value exceeds that of Company A does not imply that the addition of debt to the capital structure increases its enterprise value.
Experts generally recommend diversification, meaning owning a combination of small-, mid- and large-cap companies. The market cap of a company often says something about the quality of the business underlying the stock as well as how the stock tends to trade. Below are some of the biggest differences between small-cap and large-caps.
Large-cap companies, as a group, may pose less risk and volatility to investors than smaller companies. But when companies become very large their growth rates can slow, so they might also offer less growth potential than some smaller companies. Mid-cap companies generally have a market capitalization between $2 billion and $10 billion. Mid-cap companies operate in an industry expected to experience rapid growth. Mid-cap companies are in the process of expanding and carry an inherently higher risk than large-cap companies. For instance, Nvidia closed with a stock price of $135.58 per share on June 18, 2024, when it reached a market cap of $3.335 trillion.