Market capitalization

(market CAPitalization) The sum derived from the current stock price per share times the total number of shares outstanding. Although the market cap of a company is an indication of the value of the company, it is only a temporary metric based on the current stock market. The true value of the company (its profits, product positioning, balance sheet, etc.) may not be reflected in the market cap. Of course, the perfect example occurred during the dot-com explosion of the late 1990s, when the market caps of many companies that never made a dime in profit rose to astronomical heights. Conversely, a company can be doing well, but still have a low market cap if its products and reputation have not caught the fancy of the masses.

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A measure of a company's total value. It is estimated by determining the cost of buying an entire business in its current state.

Often referred to as "market cap", it is the total dollar value of all outstanding shares. It is calculated by multiplying the number of shares outstanding by the current market price of one share.

Investopedia Says:
Brokerages vary on their exact definitions, but the current approximate classes of market capitalization are:

Mega Cap: Market cap of $200 billion and greater
Big/Large Cap: $10 billion to $200 billion
Mid Cap: $2 billion to $10 billion
Small Cap: $300 million to $2 billion
Micro Cap: $50 million to $300 million
Nano Cap: Under $50 million

If a business has 50 shares, each with a market value of $10, the business's market capitalization is $500 (50 shares x $10/ share).

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Value of a corporation as determined by the market price of its issued and outstanding common stock. It is calculated by multiplying the number of outstanding shares by the current market price of a share. Institutional investors often use market capitalization as one investment criterion, requiring, for example, that a company have a market capitalization of $100 million or more to qualify as an investment. Analysts look at market capitalization in relation to book, or accounting, value for an indication of how investors value a company's future prospects.

Value of a business entity equal to its outstanding shares multiplied by the current market price per share. For example, if 5,000,000 shares are issued and outstanding and the market price per share is $10, the company's market capitalization is $50,000,000. Institutional investors including insurance companies and pension plans will not invest in a company unless its market capitalization is a minimum amount (e.g., $100 million) predetermined by them. Higher market capitalization reflects a larger and higher quality company, which is probably more widely held and actively traded. See also Book Value.

Look up market capitalization in Wiktionary, the free dictionary.

Market capitalization/capitalization (aka market cap or capitalized/capitalized value) is a measurement of corporate size equal to the share price times the number of shares outstanding of a public company. As owning stock represents owning the company, including all its equity, capitalization could represent the public opinion of a company's net worth and is a determining factor in stock valuation. Likewise, the capitalization of stock markets or economic regions may be compared to other economic indicators. The total market capitalization of all publicly traded companies in the world was US$51.2 trillion in January 2007^[1] and rose as high as US$57.5 trillion in May 2008^[2] before dropping below US$50 trillion in August 2008 and slightly above US$40 trillion in September 2008.^[2]

Contents 1 Valuation 2 Categorization of companies by capitalization 3 See also 4 References 5 External links

Valuation

Main article: Business valuation

Stock market capitalization in 2005

Market capitalization represents the public consensus on the value of a company's equity. A corporation, including all of its assets, may be freely bought and sold through purchases and sales of stock, which will determine the price of the company's shares. Its market capitalization is the share price multiplied by the number of shares in issue, providing a total value for the company's shares and thus for the company as a whole.

Many companies have a dominant shareholder, which may be a government entity, a family, or another corporation. Many stock market indices such as the S&P 500, Sensex, FTSE, DAX, Nikkei, Ibovespa, and MSCI adjust for these by calculating on a free float basis, i.e. the market capitalization they use is the value of the publicly tradable part of the company.

Note that market capitalization is a market estimate of a company's value, based on perceived future prospects, economic and monetary conditions. Stock prices can also be moved by speculation about changes in expectations about profits or about mergers and acquisitions.

It is possible for stock markets to get caught up in an economic bubble, like the steep rise in valuation of technology stocks in the late 1990s followed by the dot-com crash in 2000. Speculation can affect any asset class, such as gold or real estate. In such events, valuations rise disproportionately to what many people would consider the fundamental value of the assets in question. In the case of stocks, this pushes up market capitalization in what might be called an "artificial" manner. Market capitalization is therefore only a rough measure of the true size of a market.

Categorization of companies by capitalization

Traditionally, companies are divided into large-cap, mid-cap, and small-cap. People have rules of thumb to determine category from market capitalization. These need to be adjusted over time due to inflation, population change, and overall market valuation (for example, $1 billion was a large market cap in 1950 but it is not very large now), and they may be different for different countries. A common rule of thumb may look like:^[3]

• Large-cap: $10 billion–$200 billion
• Mid-cap: $2 billion–$10 billion
• Small-cap: $200 million–$2 billion

Different numbers are used by different indexes; there is no official definition of or general agreement about the exact cutoffs.

See also

• Financial ratio
• Fundamental analysis
• Growth stock
• Market price
• Market trends
• Technical analysis
• List of finance topics
• List of corporations by market capitalization
• Concentrated stock
• Free float
• Public float
• Restricted stock
• Shares authorized
• Treasury stock

References

1. ^ Global stock values top $50 trln: industry data (Reuters)
2. ^ ^{a b} WFE Report Generator including report for Domestic Market Capitalization 2008 (World Federation of Exchanges)
3. ^ Definition of Market Capitalization

This article needs additional citations for verification. Please help improve this article by adding reliable references. Unsourced material may be challenged and removed. (January 2008)

External links

• Market capitalization definition, explanations, and general details given in clear terms
• How to Value Assets - from the Washington State (U.S.) government web site

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