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The Difference Between Market Value & Market Capitalization

Original post by Geri Terzo of Demand Media

Large cap stocks are often industry leaders with a history of profits.

Market value and market capitalization are both financial items, but each represents a different concept. A market value is the price at which a stock is trading, while market capitalization represents a company's value. Essentially, market cap illustrates the market value of the sum of equity shares that investors own in a company.

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Characteristics

A stock's market value fluctuates throughout a trading session based on the demand from investors and the supply of the securities. To determine market cap, take the number of shares outstanding in a stock, and multiple that amount by the current trading price of the stock. Market cap is just one way to place a value on a company.

Significance

Market value can be affected by company-specific events. In September 2011, retailer Kohl's lost nearly 3 percent in market value when its stock price plunged in response to lower sales. Subsequently, the stock's market value reached its lowest levels in one year. Market cap was impacted by the pressure in stock's the market value throughout the year. The retailer's market cap fell from more than $15 billion in February of that year to just over $12 billion in August 2011.

Types

Stocks are often categorized by market cap. A dramatic change in a stock's market value could also affect the grouping under which a company is placed. There are various interpretations to market cap sizes, but they generally include small-cap, mid-cap and large-cap companies. Small-cap stocks can grow into large-cap stocks if the market value increases.

Risk

The market values of small-cap stocks in particular can be volatile as companies strive for profitability and expansion. Investors may buy into small-cap companies because of the promise for growth that the stocks present. But if a company fails to measure up to the lofty standards of investors, the market value could plummet and small-cap stocks might never achieve large-cap status.


                   

References

About the Author

Geri Terzo is a business writer with over 15 years experience reporting on Wall Street. Her coverage ranges from institutional investing, including hedge funds and investment banking, to family topics and her career experience includes work for Fox Business, CNBC and "IDD Magazine." Terzo is a graduate of Campbell University, where she earned a B.A. in mass communication.

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