How market cap works
Market capitalization (market cap) is the share price multiplied by the number of shares the company has issued. A company with 1 billion shares trading at $50 has a market cap of $50 billion. It changes every time the price changes.
Market cap is the stock market’s opinion of the total value of the equity. It is not the company’s sales, profit or what it would sell for in a takeover.
Size groups
Investors often sort companies by size. The cutoffs are loose conventions and differ between index providers, but a common rough guide is:
- Large cap: roughly $10 billion or more. Household names, usually established.
- Mid cap: roughly $2 billion to $10 billion.
- Small cap: below about $2 billion. These can grow quickly but are often more volatile.
- Mega cap is sometimes used for the very largest companies.
Why size matters
Large companies tend to be more stable and widely followed. Smaller companies have more room to grow, but they can also fail more easily and their shares can swing more. Many indexes are weighted by market cap, so the biggest companies have the biggest influence on an index such as the S&P 500. See index funds explained.
Market cap is not price
A $400 share does not mean a bigger company than a $20 share. What matters is price times shares. Two companies with equal market caps can have very different share prices.
