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Market capitalization, commonly called market cap, is the market value of a
publicly traded company A public company, publicly traded company, publicly held company, publicly listed company, or public limited company A public limited company (legally abbreviated to PLC or plc) is a type of public company under United Kingdom company law, som ...
's
outstanding shares Shares outstanding are all the shares of a corporation that have been authorized, issued and purchased by investors and are held by them. They are distinguished from treasury shares, which are shares held by the corporation itself, thus represent ...
. Market capitalization is equal to the
share price A share price is the price of a single share Share may refer to: * Share, to make joint use of a resource (such as food, money, or space); see Sharing * Share (finance), a stock or other financial security (such as a mutual fund) * Share, Kwara, a ...
multiplied by the number of shares outstanding. Since outstanding
stock In finance, stock (also capital stock) consists of all of the shares In financial markets A financial market is a market in which people trade financial securities and derivatives at low transaction costs. Some of the securities i ...
is bought and sold in public markets, capitalization could be used as an
indicator Indicator may refer to: Biology * Indicator (genus), ''Indicator'' (genus), a genus of birds in the honeyguide family * Environmental indicator of environmental health (pressures, conditions and responses) * Ecological indicator of ecosystem hea ...
of public opinion of a company's
net worth Net worth is the value of all the non-financial and financial asset In financial accountancy, financial accounting, an asset is any resource owned or controlled by a business or an economic entity. It is anything (tangible or intangible) that c ...
and is a determining factor in some forms of
stock valuationIn financial markets, stock valuation is the method of calculating theoretical values of companies and their stocks. The main use of these methods is to predict future market prices, or more generally, potential market prices, and thus to profit fro ...
.


Description

Market cap only reflects the ''equity'' value of a
company A company, abbreviated as co., is a Legal personality, legal entity representing an association of people, whether Natural person, natural, Legal person, legal or a mixture of both, with a specific objective. Company members share a common pu ...

company
. 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 valueEnterprise value (EV), total enterprise value (TEV), or firm value (FV) is an economic measure reflecting the market value Market may refer to: *Market (economics) A market is a composition of system A system is a group of Interaction, intera ...
(EV), which gives effect to outstanding debt, preferred stock, and other factors. For insurance firms, a value called the
embedded value The Embedded Value (EV) of a life insurance company is the present value of future profits plus adjusted net asset value. It is a construct from the field of actuarial science which allows insurance companies to be valued. Background Life insur ...
(EV) has been used. Market capitalization is used by the investment community in ranking the size of companies, as opposed to sales or total asset figures. It is also used in ranking the relative size of
stock exchange A stock exchange, securities exchange, or bourse is an exchange Exchange may refer to: Places United States * Exchange, Indiana Exchange is an Unincorporated area, unincorporated community in Green Township, Morgan County, Indiana, Green To ...
s, being a measure of the sum of the market capitalizations of all companies listed on each stock exchange. In performing such rankings, the market capitalizations are calculated at some significant date, such as June 30 or December 31. The total capitalization of
stock market A stock market, equity market, or share market is the aggregation of buyers and sellers of stocks (also called shares), which represent ownership claims on businesses; these may include ''securities'' listed on a public stock exchange, as w ...

stock market
s or economic regions may be compared with other
economic indicator An economic indicator is a statistic A statistic (singular) or sample statistic is any quantity computed from values in a sample which is considered for a statistical purpose. Statistical purposes include estimating a population Populatio ...
s (e.g. the
Buffett indicator The Buffett indicator (or the Buffett metric, or the Market capitalization-to-GDP ratio), is a Valuation using multiples#Valuation multiples, valuation multiple used to assess how expensive or cheap the aggregate stock market is at a given point in ...
). The total market capitalization of all publicly traded companies in 2020 was approximately US$93 trillion.


Historical estimates of world market cap

Total market capitalization of all publicly traded companies in the world from 1975 to 2020.


Calculation

Market cap is given by the formula \text = N \times P , where ''MC'' is the market capitalization, ''N'' is the number of shares outstanding, and ''P'' is the market price per share. For example, if a company has 4 million shares outstanding and the closing price per share is $20, its market capitalization 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. This is in contrast to mercantile pricing where purchase price, average price and sale price may differ due to transaction costs. Not all of the outstanding shares trade on the open market. The number of shares trading on the open market is called the float. It is equal to or less than ''N'' because ''N'' includes shares that are restricted from trading. The free-float market cap uses just the floating number of shares in the calculation, generally resulting in a smaller number.


Market cap terms

Traditionally, companies were divided into large-cap, mid-cap, and small-cap. The terms mega-cap and micro-cap have also since come into common use, and nano-cap is sometimes heard. Different numbers are used by different indexes; 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 In economics, nominal value is measured in terms of money, whereas real value is measured against goods or services. A real value is one which has been adjusted for inflation, enabling comparison of quantities as if the prices of goods had not cha ...
. The definitions expressed in nominal dollars need to be adjusted over decades due to
inflation In economics, inflation refers to a general progressive increase in prices of goods and services in an economy. When the general price level rises, each unit of currency buys fewer goods and services; consequently, inflation corresponds to a r ...

inflation
,
population Population typically refers the number of people in a single area whether it be a city or town, region, country, or the world. Governments typically quantify the size of the resident population within their jurisdiction by a process called a ...

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.


Cryptocurrencies

The term market capitalization has also been applied to
cryptocurrencies A cryptocurrency, crypto-currency, or crypto is a collection of binary data which is designed to work as a medium of exchange. Individual coin ownership records are stored in a ledger, which is a computerized database using strong cryptography ...
in recent years. This is in contrast to the more traditional term,
money supply In macroeconomics, the money supply (or money stock) refers to the total volume of money held by the public at a particular point in time in an economy. There are several ways to define "money", but standard measures usually include Circulati ...
, used to describe the total volume of a
fiat money Fiat money (from la, fiat, ) is a type of money that is not backed by any commodity such as gold or silver, and typically declared by a decree from the government to be legal tender. Throughout history, fiat money was sometimes issued by local ...
.


See also

*
List of public corporations by market capitalization The following is a list of publicly traded companies having the greatest market capitalization. Market capitalization is calculated from the share price (as recorded on selected day) multiplied by the number of outstanding shares. Figures are co ...
*
List of countries by stock market capitalization The following list sorts countries by the total market capitalization Market capitalization, commonly called market cap, is the market value of a publicly traded company A public company, publicly traded company, publicly held company, publicl ...
*
Market price A price is the (usually not negative) quantity Quantity is a property that can exist as a multitude or magnitude, which illustrate discontinuity and continuity. Quantities can be compared in terms of "more", "less", or "equal", or b ...
*
Shares authorized The authorised capital of a company (sometimes referred to as the authorised share capital, registered capital or nominal capital, particularly in the United States) is the maximum amount of share capital that the company is authorised by its consti ...
*
Treasury stock A treasury stock or reacquired stock is stock which is bought back by the issuing company, reducing the amount of outstanding stock on the open market ("open market" including insiders' holdings). Stock repurchases are used as a tax efficien ...


References


External links


How to Value Assets
– from the Washington State (U.S.) government web site
Year-end market capitalization by country
– World Bank, 1988–2018 {{stock market Publicly traded companies Business terms