Market capitalization is the current market value of a company’s outstanding shares. Calculate it by multiplying the current share price by the number of outstanding shares. It changes when either input changes, and it does not by itself tell you what the whole business is worth or whether its stock is a good investment.
How to calculate market capitalization
Investor.gov and the SEC glossary define market capitalization, often shortened to market cap, using the same formula:
Market capitalization = current share price × total outstanding shares
For example, FINRA’s 2018 explainer gives a company with 5 million outstanding shares and a share price of $20 a market cap of $100 million: 5,000,000 × $20 = $100,000,000.
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Why market capitalization changes
The calculation has two inputs, so a change in either can change the result.
The share price moves
If the share count stays constant, a rising share price raises market capitalization and a falling price lowers it. Investors’ views about a company help determine its market price. Expectations about future growth or products may affect those views, but expectations can change or fail to materialize, as FINRA explains.
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The number of outstanding shares changes
If the share count changes while the quoted price stays the same, the calculated market cap changes too. When comparing figures from different sources or dates, check the date and the share-count basis each source uses. There is no single share-count convention established here for every provider, so consult the provider’s methodology rather than assuming the figures are directly comparable.
What market cap tells you—and what it does not
Market capitalization measures the market value of a company’s shares. It is not necessarily the value of the company as a whole, including all parts of its business. A stock price reflects investors’ expectations, which may not prove accurate. FINRA advises treating market cap as one tool among several when considering an investment.
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One free scan finds every outdated or missing driver and matches the right update for your exact hardware.Free scan · exact hardware matchShare price alone also cannot tell you which company is larger. FINRA’s 2018 example compares two companies whose shares each trade at $50: 5 million shares produce a $250 million market cap, while 5 billion shares produce a $250 billion market cap. The different share counts make the difference.
Market cap alone does not establish that a stock is cheap, safe, stable, or likely to grow. Size is not a guarantee against failure: FINRA’s 2018 article cites WorldCom, whose market capitalization peaked at about $186 billion in 1999 before it filed for Chapter 11 bankruptcy in July 2002. That is a historical illustration, not a current market statistic.
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What large-cap, mid-cap, small-cap, and micro-cap mean
These labels describe company size by market capitalization. Investor.gov lists large-cap, mid-cap, and small-cap as market-value terms but does not set thresholds on its glossary page. FINRA’s April 26, 2018 article gives the following general ranges:
| Category | FINRA’s 2018 general range |
|---|---|
| Large-cap | $10 billion or more |
| Mid-cap | $2 billion to $10 billion |
| Small-cap | $250 million to $2 billion |
| Micro-cap | Below $250 million |
These are FINRA’s dated general ranges, not universal or current official cutoffs. A provider may use different thresholds, so check the classification method before comparing size labels.
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How market cap affects index weighting
Some indexes weight companies by market capitalization: companies with higher market caps account for a larger share of the index. In a price-weighted index, by contrast, a company’s per-share price determines its weight. Investor.gov describes these different approaches in its index fund overview.
An index fund is a mutual fund or exchange-traded fund designed to track an index. A fund may hold every security in the index or use a sample, and tracking error, fees, and other risks can affect the fund’s result. Index weighting is therefore only one part of understanding an index fund. The SEC advises investors to examine a fund’s actual costs and notes that index funds do not all have lower costs than actively managed funds; see its Investor Bulletin on index funds.
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