Market Capitalization

Quick Summary of Market Capitalization

MCAP or market cap. Market capitalization represents the aggregate value of a company or stock. It is obtained by multiplying the number of shares outstanding by their current price per share. For example, if XYZ company has 15,000,000 shares outstanding and a share price of $20 per share then the market capitalization is 15,000,000 x $20 = $300,000,000. Generally, the U.S. market recognizes three market cap divisions: large-cap (usually $5 billion and above), mid-cap (usually $1 billion to $5 billion), and small-cap (usually less than $1 billion), although the cutoffs between the categories are not precise or fixed.

The total currency market value of a joint-stock company’s outstanding shares is termed market capitalization (MCAP), which is a product of the current market price of a share and the number of outstanding shares.

To investors, the market capitalization figure is an indication of the size of a company. This value is given more importance than total assets or sales figures. Market capitalization is also termed ‘market cap’. ‘Large cap’, mid-cap, and ‘small-cap’ refer to large, medium, and small companies respectively.

Companies having a market capitalization of over $ 10 billion are termed ‘large-cap’, between $ 2 billion and $ 10 billion as mid-cap, and less than $ 2 billion as ‘small-cap’. Companies having an MCAP of $ 200 billion or more are called mega-caps, and those having MCAP of $ 250 million or less are termed micro-cap.

‘Capitalization’ is a financial term that implies a company’s shareholder’s equity along with its long-term debt. Stocks having higher market capitalization are viewed as safer investment options because of their size. However, the growth possibility of small caps is more than that of large caps.

Market cap is the going price of the company, as determined by the market. As the share price fluctuates, so does the market cap. It is not necessarily what an informed buyer of the company would pay. Enterprise value, market cap plus debt minus cash, is a closer measure of that, but it still does not take into account any premium a purchaser might offer.

Market cap, either total or on a per-share basis (i.e. the share price), is used in several metrics such as price-to-earnings (P/E) and price-to-sales (P/S). Simply divide the market cap by a full year’s worth of whatever you’re looking at.

When calculating the market cap of a foreign company that has issued American Depositary Shares or American Depositary Receipts, take the conversion ratio times the stock price times the number of ordinary shares outstanding (not the # of ADR’s) for the calculation. Example: VJET $20/share, 5 ADR = 1 ordinary share, 3.12M ordinary shares outstanding; 5*20*3.12M=312M market cap.

Divisions

While there are no rules in categorizing companies according to size, the general guidelines are as follows.

• Mega-cap: Greater than $100 billion. When you’re that big, it doesn’t really matter.
• Large-cap: Between $10 billion and about $100 billion
• Mid-cap: Between $2 billion and $10 billion (some put the lower boundary at about $2 billion)
• Small-cap: Between $250 million and $2 billion
• Microcap: Less than $250 million
• Nano cap: A somewhat rare term for those public companies with less than about $50 million of market capitalization

Free-Float Market Capitalization

Shares of a company are held differently such as by ‘founders’ or directors, government, foreign direct investors (FDI), and by ‘public’. Stocks held by the public are also referred to as ‘open-market shares or ‘free-float shares. These ‘free-float shares’ determine share index figures.

These categories of shares are excluded from ‘free-float capitalization:

1. shares held by founders, directors, or acquirers;
2. shares held by the government;
3. shares held by FDIs
4. employee welfare trust held equities;
5. strategic stocks held by individuals or corporate bodies;
6. equities that could not be sold through normal market operations;
7. stocks that are locked-in

Examples of Market Capitalization in a sentence

I did not want to know about market capitalization because I knew it would say that we had no value at all.

You need to do your best to figure out how market capitalization works and how it can help your company grow.

I originally thought the share price of my company’s stock was expensive, but when I multiplied the price by the number of shares outstanding, I saw that the company’s market capitalization was low.

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