If you want a quick way to know how big or small a publicly traded company is, the number to look at is its market capitalization, or market cap for short. It’s a constantly changing figure based on how much investors think a stock is worth, and it’s a key metric for helping you assess risk.

In this guide, we’ll explain what market cap is, how to calculate it and how it fits in with a smart investing strategy. 

Why It Matters

Market cap values a company by taking into account the number of outstanding shares and their current price. Because prices fluctuate based on supply and demand, market cap provides a real-time valuation of a company. 

Outstanding shares are those held by all shareholders, including retail and institutional investors, as well as company insiders and executives. Market cap plays a key role for investors by aligning their risk tolerance with a company’s size. Those seeking higher growth potential may prefer small- or mid-cap stocks while those who want lower risk and stability may prefer large-caps. 

How to Calculate Market Cap

The formula is simple: Market Cap = Current Share Price x Total Number of Shares Outstanding

For example: A company with 10 million outstanding shares that’s currently trading at $100 a share has a market cap of $1 billion. 

Market Cap Categories 

Companies fall into different segments based on the size of their market cap. 

• Nano-caps: Companies with a market cap of less than $50 million. With a market cap of around $46 million, Aligos Therapeutics is a nano-cap. 
• Micro-caps: Companies with a market cap between $50 million and $250 million. With a market cap of around $166 million, Expensify is a micro-cap. 
• Small-caps: Companies with a market cap between $250 million and $2 billion. With a market cap of around $792 million, Fiverr is a small-cap. 
• Mid-caps: Companies with a market cap between $2 billion and $10 billion. With a market cap of around $6 billion, Bath & Body Work is a mid-cap. 
• Large-caps: Companies with a market cap of $10 billion to $200 billion. With a market cap of around $25 billion, Expedia Group is a large-cap. 
• Mega-caps: Companies with a market cap over $200 billion. Tech giant Nvidia is a mega-cap with a market cap of around $4.5 trillion. 

Factors that Affect Market Cap

Anything that sends a stock price up or down will raise or lower a company’s market cap. Various factors impact prices, such as supply and demand, fundamental strength, competitor performance, company-specific news and other geopolitical factors.

Market Cap and Investment Strategy 

Market cap is the easiest and most widely used way to value a company. It helps you gauge whether or not a stock fits into your risk profile. Smaller-cap stocks can be more volatile but with the potential for greater rewards. Larger-cap stocks can be steadier and offer safer returns, even in times of a market downturn, but with less growth. A good blend of market caps can help you build a diversified portfolio.

Keep in mind, though, that market cap is just one metric in your toolbox. It doesn’t take into account other factors that go into determining a company’s real value such as its debt load, earnings potential or industry outlook. Two companies with the same market cap can have very different profiles overall. It also does not correlate with a company’s or stock’s performance.

If you’re ready to start investing, here are a number of online stock brokers to consider. 

Frequently Asked Questions

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