Definition
The term market capitalization is used to describe the total value of a public company's shares of stock outstanding; this includes both common stock as well as preferred shares.
Calculation
Market Capitalization = Market Price per Share x Shares Outstanding
Explanation
Also known as market cap and MCAP, market capitalization is commonly used by investors to describe the size of a company. There are a number of categories used as market capitalization break points. Unfortunately, there isn't a standard definition for these cut off points. Suggested values for these categories appear below:
Large Cap: in excess of $10 billion
Mid Cap: between $1 and $10 billion
Small Cap: under $1 billion
Some financial institutions include more granular categories such as:
Mega Cap: in excess of $100 billion
Micro Cap: between $10 and $100 million
Nano Cap: under $10 million
Market price per share is used in the calculation of market capitalization; therefore, it's a measure of value assigned to the company by investors. As such, market cap takes into account factors such as earnings per share as well as the company's projected earnings growth rate.
Example
The current market price of Company A's common stock is $88.24. Company A has 693,000 shares of common stock outstanding. Company A has not issued shares of preferred stock. The market capitalization of Company A would be:
= $88.24 x 693,000, or $61,150,320
Related Terms
- The financial metric known as the price to book ratio measures the market price per share of common stock of a company relative to the book value of each share. The price to book ratio is used to determine if a company's stock price is undervalued.
Moneyzine EditorSeptember 21st, 2023 - The financial accounting term treasury stock refers to those shares of stock that have been issued by a company, and purchased, or reacquired, by that same company. Treasury stock appears in the owner's equity section of the company's balance sheet.Moneyzine EditorNovember 6th, 2024
Often used by analysts to measure the safety of an investment, the book value per share, or BV, calculates the dollars per share left over after all debt of the company has been paid to creditors.Moneyzine EditorNovember 6th, 2024
The financial ratio earnings per share, or EPS, is perhaps the single most popular variable used by analysts and investors to evaluate the profitability of a company. EPS measures the profitability of a company on a per share basis.Moneyzine EditorNovember 6th, 2024
The financial accounting term book value refers to the original cost of an asset minus the accumulated depreciation on that same asset. The total book value of all assets can be found on the company's balance sheet.Moneyzine EditorNovember 6th, 2024
