Market capitalization

The New York Stock Exchange on Wall Street, the world's largest stock exchange per total market capitalization of its listed companies.[1]

Market capitalization (market cap) is the total market value of the shares outstanding of a publicly traded company; it is equal to the share price times the number of shares outstanding.[2][3] As outstanding stock is bought and sold in public markets, capitalization could be used as a proxy for the public opinion of a company's net worth and is a determining factor in some forms of stock valuation. The investment community uses this figure to determine a company's size, as opposed to sales or total asset figures.

The total capitalization of stock markets or economic regions may be compared to other economic indicators. The total market capitalization of all publicly traded companies in the world was US$51.2 trillion in January 2007[4] and rose as high as US$57.5 trillion in May 2008[5] before dropping below US$50 trillion in August 2008 and slightly above US$40 trillion in September 2008.[5]

Calculation

Market cap is given by the formula {\textstyle MC = N \times P }, where MC is the market capitalization, N is the number of shares outstanding, and P is the current price per share.

For example, if some company has 4 million shares outstanding and the closing price per share is $20, its market cap is then $80 million. If the closing price per share rises to $21, the market cap becomes $84 million. If it drops to $19 per share, the market cap falls to $76 million.

Market cap terms

Traditionally, companies were divided into large-cap, mid-cap, and small-cap.[2] The terms mega-cap and micro-cap have also since come into common use,[6][7] and nano-cap is sometimes heard. Different numbers are used by different indexes;[8] there is no official definition of, or full consensus agreement about, the exact cutoff values. The cutoffs may be defined as percentiles rather than in nominal dollars. The definitions expressed in nominal dollars need to be adjusted over decades due to inflation, population change, and overall market valuation (for example, $1 billion was a large market cap in 1950, but it is not very large now), and market caps are likely to be different country to country.

Related measures

Market cap reflects only the equity value of a company. It is important to note that a firm's choice of capital structure has a significant impact on how the total value of a company is allocated between equity and debt. A more comprehensive measure is enterprise value (EV), which gives effect to outstanding debt, preferred stock, and other factors. For insurance firms, a value called the embedded value (EV) has been used.

See also

References

  1. ↑ "Market highlights for first half-year 2010" (PDF). World Federation of Exchanges. Retrieved May 29, 2013.
  2. 1 2 "Market Capitalization Definition". Retrieved April 2, 2013.
  3. ↑ "Financial Times Lexicon". Retrieved February 19, 2013.
  4. ↑ Global stock values top $50 trln: industry data (Reuters)
  5. 1 2 WFE Report Generator including report for Domestic Market Capitalization 2008 (World Federation of Exchanges)
  6. ↑ "Mega Cap Definition". Retrieved April 2, 2013.
  7. ↑ "Micro Cap Definition". Retrieved April 2, 2013.
  8. ↑ Definition of Market Capitalization

External links

Look up market capitalization in Wiktionary, the free dictionary.
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