Market Cap

You will hear companies referred to as "small-cap", "mid-cap" and "large-cap". You will also hear about "micro-caps", which are even smaller than small-caps. "Cap" isn't as mysterious as it sounds: it's definition is short for "capitalization", which is the total value of the corporation's existing stock. If my hypothetical, nanno-micro-cap has 200 shares and trades at $8 a share, you could define my market cap as a whopping $1,600. As you can see, the market cap of a company can change from moment to moment as its share prices rise and fall on the tides of time. Because it's based on what people expect to come about, (people pay for stock

when they think its value will increase), it's somewhat arbitrary. But, because the entire stock market is based on things like consumer confidence and supply and demand, it's also somewhat arbitrary, although it still manages to operate like something real, and brings about tangible rewards and successes to the ones who play the game.

Market cap is about equity: it isn't necessarily an indicator of company size. Although large-cap companies often consist of thousands of employees and hundreds of offices, a wealthy company with just a few employees but a huge cash flow may still issue enough stock that's traded at high enough prices to qualify. If a corporation's total stock value is over $5 or $10 billion, it's usually referred to as large-cap; mid-caps' stock totals spread between $1 billion and just under $5 or $10 billion, depending on who you talk to; small-caps have somewhere between $250 million and $1 billion in stock, and micro-caps have under $250 million in stock value. You'll notice that even a micro-cap can rate a vote of confidence: after all, do you know anybody who has more than $250 million?

The share price can't tell you the size of a company, either. A big, wealthy company may issue millions of shares of stock at a low price, and a small company may only have a few hundred shares and a hefty price tag for each. Multiplying the number of shares outstanding (the "float" in trading parlance) by the price per share gives you the "size" of the company in terms of its economic power; its "market cap".

Bookmark this page

Email this page to a friend

How to stick to a household budget
and have extra
money for investing

1. Customize your budget with your current needs, wants and future goals in mind.

2. Try to think if your budgeting plan as a "spending" plan rather than penny pitching.

3. Sit down and rationally discuss budget goals and spending limits with your spouse. You are bound to disagree somethere, but it important to take the time to find common ground.

Stocks & Investing Advice

	Stock Market Information
	Stock Indexes
	Mutual Funds Investing
	IRA Accounts
	401K Retirement Plans
	College Education Funding
	Stock Market History
	Investment Fraud
	Investing Terms
	Loan Payment Calculator
	Return Home

Stocks Investing