Market capitalization, also called market cap, is the overall price of the company as measured by the price of all outstanding shares. It's calculated by multiplying the share price by the number of shares outstanding.
Market cap is the going price of the company, as determined by the market. As the share price fluctuates, so does the market cap. It is not necessarily what an informed buyer of the company would pay. Enterprise value, market cap plus debt minus cash, is a closer measure of that, but it still does not take into account any premium a purchaser might offer.
Market cap, either total or on a per share basis (i.e. the share price), is used in several metrics such as price-to-earnings (P/E) and price-to-sales (P/S). Simply divide the market cap by a full-year's worth of whatever you're looking at.
When calculating the market cap of a foreign company that has issued American Depositary Shares or American Depositary Receipts, use the ADRs or ADSs, not the number of shares issued in the foreign country, for the calculation.
While there are no rules in categorizing companies according to size, the general guidelines are as follows.
- Mega-cap: Greater than $100 billion. When you're that big, it doesn't really matter.
- Large cap: Between $10 billion and about $100 billion
- Mid cap: Between $2 billion and $10 billion (some put the lower boundary at about $2 billion)
- Small cap: Between $250 million and $2 billion
- Micro cap: Less than $250 million
- Nano cap: A somewhat rare term for those public companies with less than about $50 million of market capitalization
David Gardner Explains
Recent Mentions on Fool.com
- Intel Burns Nearly $1 Billion on Mobile in Q1
- Buckle, Cheesecake Factory, Dorman Products: 3 Mid-Cap Companies to Watch
- Why Apple Will Thrive With Ive at the Software Design Helm
- Why the Dow Jones Industrial Average Is Useless
- 3 of Offshore Drilling's Biggest Players Are Now Negative on the Industry Outlook
- Why Are Google Inc. and Facebook So Interested in Drones?