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Market capitalization, commonly called market cap, is the market value of a publicly traded company's outstanding shares. Market capitalization is equal to the share price multiplied by the number of shares outstanding. Since outstanding
stock Stock (also capital stock) is all of the shares into which ownership of a corporation A corporation is an organization—usually a group of people or a company—authorized by the state to act as a single entity (a legal entity recogn ...
is bought and sold in public markets, capitalization could be used as an indicator of public opinion of a company's net worth and is a determining factor in some forms of stock valuation.


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 personality, legal or a mixture of both, with a specific objective. Company members share a common ...
. 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. 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 exchanges, 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, a ...
s or economic regions may be compared with other economic indicators (e.g. the Buffett indicator). The total market capitalization of all publicly traded companies in the world was US$51.2 trillion in January 2007 and rose as high as US$57.5 trillion in May 2008WFE Report Generator including report for Domestic Market Capitalization 2008
( World Federation of Exchanges)
before dropping below US$50 trillion in August 2008 and slightly above US$40 trillion in September 2008. In 2014 and 2015, global market capitalization was US$68 trillion and US$67 trillion, respectively.


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 closing 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 company, small-cap. The terms mega-cap and microcap stock, micro-cap have also since come into common use, and nano-cap is sometimes heard. Different numbers are used by different indexes;Definition of Market Capitalization
/ref> 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 real versus nominal value (economics), 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.


See also

*List of public corporations by market capitalization *Market price *Shares authorized *Treasury stock


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