Market capitalization (often market cap) is a measurement of size of a business enterprise (corporation) equal to the share price times

the number of shares outstanding (shares that have been authorized, issued, and purchased by investors) of a publicly traded company. As owning stock represents ownership of 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]

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1 Valuation 2 Categorization of companies by capitalization 3 Related measures 4 See also 5 References 6 External links

[edit] Valuation
Main article: Business valuation

Stock market capitalization in 2005 Market capitalization represents the public consensus on the value of a company's equity. An entirely public 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. Thus, market

capitalization is one measure of "float" i.e., share value times an equity aggregate, with free and public being others. 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.

[edit] Categorization of companies by capitalization

Traditionally, companies were divided into large-cap, mid-cap, and small-cap. The terms mega-cap and micro-cap have also since come into common use, and nano-cap is sometimes heard.[3] Different numbers are used by different indexes;[3][4] there is no official definition of, or full consensus agreement about, the exact cutoff values. The cutoffs may be defined as percentiles rather than in nominal dollars. The definitions expressed in nominal dollars need to be adjusted over the decades 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 rule of thumb may look like:

Mega-cap: Over $100 billion Large-cap: $10 billion$100 billion Mid-cap: $1 billion$10 billion Small-cap: $100 million$1 billion Micro-cap: $10 million-$100 million Nano-cap: Below $10 million

Cap is short for capitalization which is a measure by which we can classify a company's size. Big/Large caps are companies that have a market cap between 10-200 billion dollars. Mid caps range from 2 billion to 10 billion dollars. These might not be industry leaders but are well on their way to becoming one. Small caps are typically new or relatively young companies and have a market cap between 100 million to 1 billion dollars. SmallCap's track record won't be as lengthy as that of the Mid to MegaCaps, SmallCaps do present the possibility of greater capital appreciation, but at the cost of greater risk. What is market cap? Market cap is short for "market capitalization." It represents the value of a company, including all of its assets, capital, revenues, etc. Basically, if the company were to be sold for a fair price, it

would be close to the market cap. Of course people may have different opinions of what a company's value is, but there is a certain way to calculate the market cap. How do you calculate it? The market cap is calculated as follows: Number of Shares Outstanding X Market Cap of a share This formula is easy to understand because the shares represent ownership of the company. All of the shares together represent the entire company, so we can find the value of the company by finding the total value of all of the shares. Types of Market Cap There are several approximations of market cap to determine the size of a business. There are different definitions from different sources, but the following is an approximate listing: 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 Why is this important? Different types of investors will invest in companies with market caps suited to their liking. For example, the mega cap companies like Wal-Mart, Exxon-Mobil, etc. are very stable, and if you want to invest in a solid, consistently performing company they are good choices. Investments generally become more risky, and there is more potential for gain and loss as the market cap decreases. Some investors tend to invest mostly in mid and small cap stocks because they want to maintain a riskier portfolio. Others have companies with different categories of market caps in order to maintain a mixed portfolio. Whatever you choose is based upon you and your goals.

In this picture from Reuters in 2005, you can see the average gain over 17 years for the largest cap stocks vs. the lowest cap stocks. For this sample firm, you can see that stocks with lower market caps are more volatile and have much greater potential for gain. Of course, they also carry greater potential for loss, so you should only invest if you have a certain degree of confidence in them.