Market Capitalization

Market Capitalization refers to the total market value of company’s outstanding shares. It is one of the key parameters to determine the size of a company. It is calculated by multiplying the current market price of one share of a company with the total number of outstanding shares of the company.

Example

Suppose a company has 20 million outstanding shares and the current market price of each share is $5, then the market cap of the company is 20 million* $5 = $100 million.

Market Cap is of three types:

1.Large Cap: The companies having a market cap of $10 billion or more fall into this category. Companies like IBM, Microsoft, General Electric are large cap companies.

2.Medium Cap: Companies having market cap ranging from $2 billion to $10 billion. This group of the company is considered to be more volatile than large-cap companies. However, they offer more growth potential than large cap companies.

3.Small Cap: Small Cap companies are relatively small companies having a market capitalization of less than $2 billion. Small-cap companies can be further categorized into Micro-cap, companies with a market cap between $50 million to $300 million and Nano cap companies, which have a market cap of less than $50 million. The share prices of small-cap companies are volatile and the expected return is generally more than the medium cap companies to compensate for the risk. These companies are generally in their growth phase of the business lifecycle.