A small cap company is a company whose

market capitalization Market capitalization, sometimes referred to as market cap, is the total value of a publicly traded company's outstanding common shares owned by stockholders. Market capitalization is equal to the market price per common share multiplied by t ...

( shares x value of each share) is small, under $1 billion.

Overview

A small cap company typically has under $1 billion under control and are hence considered small companies. Small companies generally are not able to secure the best (

prime A prime number (or a prime) is a natural number greater than 1 that is not a product of two smaller natural numbers. A natural number greater than 1 that is not prime is called a composite number. For example, 5 is prime because the only ways ...

) borrowing rates and wield reduced power, including a smaller

market share Market share is the percentage of the total revenue or sales in a market that a company's business makes up. For example, if there are 50,000 units sold per year in a given industry, a company whose sales were 5,000 of those units would have a ...

. Being small, they are also less financially stable than larger companies, and are more likely to become

bankrupt Bankruptcy is a legal process through which people or other entities who cannot repay debts to creditors may seek relief from some or all of their debts. In most jurisdictions, bankruptcy is imposed by a court order, often initiated by the debt ...

. However, they do generally have more

growth potential In finance, a growth stock is a stock of a company that generates substantial and sustainable positive cash flow and whose revenues and earnings are expected to increase at a faster rate than the average company within the same industry. A growt ...

and over time have greater but more volatile expected returns.

Overview

See also