Market capitalization/capitalisation (often market cap) is a measurement of the size of a business enterprise (corporation) equal to the share price times the number of shares outstanding of a public company. As owning stock represents ownership of the company, including all its equity, capitalization could represent the public opinion of a company’s net worth and is a determining factor in stock valuation
Market capitalization, or market cap, identifies the size and value of a publicly traded corporation according to “the market.” . However, intelligent investment decisions cannot be made solely by market cap information.
Significance
Market capitalization often relates to where a business is along its life cycle. Investors can expect younger and smaller companies to carry greater risks of failure but more potential to grow and expand. Conversely, larger and more mature companies offer more stability but lesser chances for high returns.
Calculation
Market capitalization is calculated by multiplying the number of shares outstanding related to the corporation times its present share price. Therefore, market capitalization relates to the worth of the overall business, according to the stock market.
Types
Stocks are broadly defined as large, middle and small capitalization companies. Some investors also identify micro and mega cap stocks at the extremes.
You can use the major stock market indices as good reference points to identify individual stocks and track performance by capitalization.
Market capitalization alone is no indicator of performance. Stocks should be grouped by sector and fundamental analyses before you decide to invest.