Table of Contents
Market capitalization (market cap) is a basic formula that multiplies a company’s current price per share by the number of outstanding shares to get the total value of its equity.
A company’s market capitalization, or market cap, provides a useful measure of its size and value, versus revenue or sales figures. Knowing what the market cap is for a given company can help investors compare it to other companies of a similar size.
Note that the market cap (the value of a company’s total equity) is different from a company’s market value, which is a more complex calculation based on various metrics, including return-on-equity, price-to-earnings, and more.
Key Points
• Market capitalization (market cap) refers to the total market value of a company’s outstanding shares and provides a measure of its size and value.
• Market cap can be calculated by multiplying the current price per share by the number of outstanding shares.
• Market cap helps investors compare companies of similar size in order to evaluate the potential risk and reward.
• Companies are categorized into small-cap, mid-cap, large-cap, and mega-cap based on their market cap range.
• Smaller companies (nano-cap and micro-cap) can be riskier, but offer growth opportunities, while larger companies (large-cap and mega-cap) tend to be more stable.
What Is Market Capitalization?
A company’s market cap, or market capitalization, is the total dollar value of its outstanding shares. Outstanding shares simply refers to the amount of stock that has been issued by the company and is held by shareholders.
Market-Cap Categories
Analysts, as well as index and exchange-traded fund (ETF) providers, commonly sort stocks into small-, mid-, and large-cap stocks, though some include a broader range that goes from micro- or nano-cap stocks all the way to mega cap on the other end.
Understanding the market capitalization for different stocks and funds can help investors evaluate risk and performance when investing online or through a traditional brokerage.
The size criteria for these categories can change depending on market conditions but here are some basic parameters.
Nano-Cap and Micro-Cap Stocks
Nano- and micro-cap companies are those with a total market capitalization under $300 million. Some define nano-cap stocks as those under $50 million, and micro-cap stocks as those between $50 million and $300 million.
These smaller companies can be riskier than large-cap companies (though not always). Many microcap stocks trade over-the-counter (OTC). Over-the-counter stocks are not traded on a public exchange like the New York Stock Exchange (NYSE) or Nasdaq. Instead, these stocks are traded through a broker-dealer network.
As a result there may be less information available about these companies, which can make them difficult to assess in light of certain risk and performance factors.
Small-Cap Stocks
Small-cap companies are considered to be in the $300 million to $2 billion range. They are generally younger and faster-growing than large-cap stocks. Investors often look to small-caps for growth opportunities.
While small-cap companies have historically outperformed large-caps, these stocks can also be more risky, and may require more due diligence from would-be investors.
Mid-Cap Stocks
Mid-cap companies lie between small- and large-cap companies, with market caps of $2 billion to $10 billion.
When investing in stocks, investors may find mid-cap companies attractive because they can offer some of the growth potential of small-caps with some of the maturity of large-caps.
But mid-cap stocks likewise can share some of the downsides of those two categories, being somewhat vulnerable to competition in some cases, or lacking the impetus to expand in others.
Large-Cap Stocks
Large-cap stocks are those valued between $10 billion and $200 billion, roughly. Large-cap companies tend not to offer the same kind of growth as small- and mid-cap companies. But what they may lack in performance they can deliver in terms of stability.
These are the companies that tend to be more well established, less vulnerable to sudden market shocks (and less likely to collapse). Some investors use large-cap stocks as a hedge against riskier investments.
Mega-Cap Stocks
Mega cap describes the largest publicly traded companies based on their market capitalization. Mega cap stocks typically include industry-leading companies with highly recognizable brands with valuations above $200 billion.
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How to Calculate Market Cap
To figure out a company’s market cap, simply multiply the number of outstanding shares by the current price per share. If a company has 10 million outstanding shares of stock selling for $30 per share, the company’s market cap is $300 million.
Share prices fluctuate constantly, and as a result, so does market cap. You should be able to find the number of outstanding shares listed on a company’s balance sheet, where it’s referred to as “capital stock.” Companies update this number on their quarterly filings with the Securities and Exchange Commission (SEC).
Market Cap Formula
The formula for determining a company’s market cap is fairly simple:
Current price per share x Total # of outstanding shares = Market capitalization
Remember that the share price doesn’t determine the size of the company or vice versa. When measuring market cap you always have to look at the share price multiplied by the number of outstanding shares.
• Company A could be worth $100 per share, and have 50,000 shares outstanding, for a total market cap of $5 million.
• Company B could be worth $25 per share, and have 20 million shares outstanding, for a total market cap of $500 million.
Market Cap and Number of Shares
In some cases, market cap can change if the number of stocks increases or decreases. For example, a company may issue new stock or even buy back stock. When a company issues new shares, the stock price may dip as investors worry about dilution.
Stock splits do not increase market share, because the price of the stock is also split proportionally.
Changes to the number of shares are relatively rare, however. More commonly, investors will notice that changes in share price have the most frequent impact on changing market cap.
Market Cap vs Stock Price
While the share price of a company tells you how much it costs to own a piece of the company, it doesn’t really give you any hints as to the size of the company or how much the company is worth.
Market cap, on the other hand, can reveal how a particular stock might behave. For example, large companies may be more stable and experience less volatility than their smaller counterparts.
Recommended: Intrinsic Value vs. Market Value
Evaluate Stocks Using Market Cap
Understanding the market cap of a company can help investors evaluate the company in the context of other companies of similar size.
For instance, market cap can clue investors into stocks’ potential risk and reward, in part because the size of a company can be related to where that company is in its business development.
Investors can also evaluate how a company is doing by comparing its performance to an index that tracks other companies of a similar size, a process known as benchmarking.
• The S&P 500, a common benchmark, is a market-cap weighted index of the 500 largest publicly traded U.S. companies.
• The S&P MidCap 400, for example, is a market-cap weighted index that tracks mid-cap stocks.
• The Russell 2000 is a common benchmark index for small cap stocks.
Within this system, companies with higher market cap make up a greater proportion of the index. You may often hear the S&P 500 used as a proxy for how the stock market is doing on the whole.
What Market Cap Can Tell You
Here are some characteristics of larger market-cap companies versus smaller-cap stocks:
Volatility: Larger companies, some of which are considered blue-chip stocks, tend to be less volatile than smaller stocks, and tend to offer steady returns.
Revenue: Larger stocks tend to have more international exposure when it comes to their sales and revenue streams. Meanwhile, smaller stocks can be more oriented to the domestic economy.
Growth: Smaller companies tend to have better odds of offering faster growth.
Valuation: Larger stocks tend to be more expensive than smaller ones and have higher valuations when it comes to metrics like price-to-earnings ratios.
Dividends: Many investors are also drawn to large cap stocks because companies of this size frequently pay out dividends. When reinvested, these dividends can be a powerful driver of growth inside investor portfolios.
Market Cap and Diversification
So how do you use market cap to help build a portfolio? Market cap can help you choose stocks that could help you diversify your portfolio.
Building a diversified portfolio made up of a broad mix of investments is a strategy that can help mitigate risk.
That’s because different types of investments perform differently over time and depending on market conditions. This idea applies to stock from companies of varying sizes, as well. Depending on market conditions, small-, medium-, and large-cap companies could each beat the market or trail behind.
Because large-cap companies tend to have more international exposure, they might be doing well when the global economy is showing signs of strength. On the flip side, because small-cap companies tend to have greater domestic exposure, they might do well when the U.S. economy is expected to be robust.
Meanwhile, larger-cap companies could also outperform when there’s a downturn, because they may have more cash at hand and prove to be resilient. In recent years, the biggest companies in the U.S. have been linked to technology. Therefore, picking by market cap can have an impact on what kind of sectors are in an investor’s portfolio as well.
What Is Free-Float Market Cap?
Float is the number of outstanding shares that are available for trading by the public. Therefore, free-float market cap is calculating market cap but excluding locked-in shares, typically those held by company executives.
For example, it’s common for companies to provide employees with stock options or restricted stock units as part of their compensation package. These become available to employees according to a vesting schedule. Before vesting, employees typically don’t have access to these shares and can’t sell them on the open market.
The free-float method of calculating market cap excludes shares that are not available on the open market, such as those that were awarded as part of compensation packages. As a result, the free-float calculation can be much smaller than the full market cap calculation.
However, this method could be considered to be a better way to understand market cap because it provides a more accurate representation of the movement of stocks that are currently in play.
Market Cap vs Enterprise Value
While market cap is the total value of shares outstanding, enterprise value includes any debt that the company has. Enterprise value also looks at the whole value of a company, rather than just the equity value.
Here is the formula for enterprise value (EV):
Market cap + market value of debt – cash and equivalents.
A more extended version of EV is here:
Common shares + preferred shares + market value of debt + minority interest – cash and equivalents.
The Takeaway
Market capitalization is a common way that analysts and investors describe the value and size of different companies. Market cap is simply the price per share multiplied by the number of outstanding shares. Given that prices fluctuate constantly, so does the market cap of each company, but the parameters are broad enough that investors can generally gauge a company’s market capitalization in order to factor it into their investing strategy.
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FAQ
What is the maximum market cap?
In theory there is no cap on market cap; i.e., there is no maximum size a company can be. As of Aug. 20, 2025, the top five biggest companies by market cap, according to Motley Fool, are: Nvidia ($4.24 trillion), Microsoft ($3.90 trillion), Apple ($3.02 trillion), Alphabet (Google) ($2.30 trillion), Amazon ($2.28 trillion).
How does market cap go up?
A company’s market cap can grow if the share price goes up.
Are large-cap stocks good?
The market cap of any company is neither good nor bad; it’s simply a way to measure the company’s size and value relative to other companies in the same sector or industry. You can have mega-cap companies that underperform and micro-cap companies that outperform.
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