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, take the conversion ratio times the stock price times the number of ordinary shares outstanding (not the # of ADR's) for the calculation. Example: VJET $20/share, 5 ADR = 1 ordinary share, 3.12M ordinary shares outstanding; 5*20*3.12M=312M market cap.
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
- Best Stocks to Buy: Another Beaten-Down Industry I'm Buying
- Can Biotech Duplicate Its 2014 Performance, or Is It Time to Jump Ship?
- Will General Electric Company's Rebalancing Act Pay Off in 2015?
- Schlumberger vs. Halliburton: You'll Never Guess Which Is Really the Most Undervalued
- Colgate-Palmolive Company Earnings: Strong Organic Sales Boost Shares
- When "Sin" Pays: A Look at Big Tobacco