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Market capitalization, or market cap, is the value of a public company’s outstanding shares at the current share price. Calculate it by multiplying the share price by the total number of outstanding shares. It changes when either input changes, and it is not a complete measure of what the underlying business is worth.
How to calculate market capitalization
Market capitalization = current share price × total outstanding shares. Investor.gov defines it as the value of a corporation determined by multiplying the current public market price of one share by the number of total outstanding shares (Investor.gov glossary). The SEC glossary gives the same general definition (SEC glossary).
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For example, FINRA’s 2018 explainer gives a company with 5 million outstanding shares priced at $20 each a market capitalization of $100 million: 5,000,000 × $20 = $100,000,000 (FINRA, April 26, 2018).
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1Scan for outdated or missing drivers - takes under a minute2Clear out junk files and repair common Windows errors3Fix the driver behind crashes, sound loss and screen glitchesShare price by itself does not tell you how large a company is. FINRA’s comparison makes the difference clear: at $50 per share, a company with 5 million shares has a $250 million market cap, while one with 5 billion shares has a $250 billion market cap (FINRA, April 26, 2018).
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Why market cap changes
The share price moves
If the share count stays constant, a changing share price changes market capitalization. Investors’ expectations help shape the price: expectations about future growth or products can raise or lower what investors are willing to pay, and those expectations may later prove wrong (FINRA, April 26, 2018).
The number of outstanding shares changes
The share count is the formula’s other input. If it changes, market cap can change even when the quoted share price does not. When comparing market-cap figures from different providers or dates, check the reported date and the share-count basis; the definition alone does not establish one universal share-count convention for every provider.
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What market capitalization does—and does not—measure
Market cap measures the market value of a company’s shares. It is not necessarily the value of the whole business and all its parts. Nor does a large or small market cap, on its own, establish whether a stock is cheap, safe, stable, or likely to grow. FINRA advises treating market cap as one tool among several when considering an investment; expectations reflected in a stock price may not pan out (FINRA, April 26, 2018).
Company-size labels such as large-cap, mid-cap, small-cap, and micro-cap are based on market capitalization, but the cutoffs are not universal. Investor.gov lists these as size and market-value terms without setting thresholds (Investor.gov glossary). FINRA’s 2018 article gives the following general ranges; treat them as that source’s dated ranges, not current official boundaries:
| Label | FINRA ranges published in 2018 |
|---|---|
| Large-cap | $10 billion or more |
| Mid-cap | $2 billion to $10 billion |
| Small-cap | $250 million to $2 billion |
| Micro-cap | Below $250 million |
Size is not a guarantee against failure. FINRA’s 2018 article notes that WorldCom reached a peak market capitalization of about $186 billion in 1999 and filed for Chapter 11 in July 2002. That is a historical example, not a current market statistic (FINRA, April 26, 2018).
Independent reader supportYour contribution helps us test, update, and keep practical guides available for everyone.How market cap affects stock indexes and index funds
Some indexes are market-cap-weighted: companies with higher market capitalization make up a larger share of the index’s overall value. In a price-weighted index, the per-share price determines a security’s weight instead (Investor.gov, “Index Funds”).
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An index fund is a mutual fund or exchange-traded fund that seeks to track an index. It may hold every security in the index or use a sample. Index weighting is only one part of evaluating a fund: funds can have fees, tracking error, and other risks. Investor.gov recommends understanding a fund’s actual costs and cautions that not all index funds cost less than actively managed funds (SEC Investor Bulletin, August 6, 2018).
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