Howdy Wall Street Willy, I heard that Facebook had a really high market cap, but what is a market cap anyway?
Well, market cap, also known as market capitalization, is the market value of a company. It is basically the number of stocks, or shares, in the company, times the stock price.
Market Capitalization or Market Cap = No. of Stocks in the Company X The Stock Price
So for example, if there are 1,000 shares in a company, and each share is $100, then the market capitalization, or market cap, of the company is $100,000 dollars.
Market Capitalization or Market Cap = 1,000 X $100 = $100,000
Ok. But what are the different kinds of market cap or market capitalization?
The different types of market capitalization are small cap, mid cap, and large cap.
There’s no clear definition of the value of the company for each, but generally speaking, more than $10 billion of market capitalization is large cap, mid cap would be $2 – $10 billion, and small cap would be less than $2 billion.
But, how is market cap even relevant?
Well generally, the higher the market cap, the larger the company, and the broader its reach. And therefore, it is also usually less risky to invest in.
For example, Disney’s market capitalization is $150 billion, and it’s a large company. It’s a household name, and pretty much everybody knows about it.
$150 Billion!! That is so AWESOME!
Yes, it is. That is why it is such a well known company.
And normally, a company starts out small, and then if it’s very successful, it becomes a mid cap company. But then, if it’s even more successful, it can hopefully become a large cap company.
Wow, thank you so much for teaching me what a market cap is, Wall Street Willy
You’re welcome, Sooper Cooper. Remember, finance is your friend!
Podcast: What is Market Market Capitalization
Everything you need to know about Market Capitalization or Market Cap: what is market capitalization, what are the different kinds of market cap, how is market cap relevant or important, and more.
Show notes and transcript at: What is Market Cap or Market Capitalization?