Market Cap = Share Price × Shares Outstanding
The Short Version
Market capitalization ('market cap') is the total value the stock market assigns to a company. It's a quick way to gauge a company's size and is used to sort stocks into categories that carry different risk/reward profiles.
Explain It Like I'm 10
Imagine a school is selling 'ownership shares' in the school store, and each share costs $5. If there are 1,000 shares total, then the whole store is 'worth' 1,000 × $5 = $5,000 in the eyes of anyone buying and selling those shares. That $5,000 total is the store's 'market cap' — market capitalization is just a fancy term for 'share price × total number of shares,' which tells you the total value the market has put on the whole business.
Step-by-Step Example
- 1 A company's stock costs $50 per share.
- 2 There are 10,000,000 shares in total.
- 3 Multiply: $50 × 10,000,000 = $500,000,000 market cap.
- 4 That places it in the 'small-cap' category (roughly $300M–$2B).
- 5 If the share price doubled to $100 with the same share count, market cap would double to $1,000,000,000 — moving it into 'mid-cap' territory — even though nothing about the actual business changed, just what people are willing to pay for it.
A company with 10 million shares outstanding trading at $50/share has a market cap of $500 million.
Quick Recap
- ✓ Large-cap: generally $10B+ — typically established, more stable companies.
- ✓ Mid-cap: roughly $2B–$10B — a mix of growth potential and stability.
- ✓ Small-cap: roughly $300M–$2B — higher growth potential, but usually more volatile and risky.