Market capitalization is the total dollar market value of a company's outstanding shares of stock, calculated by multiplying the total number of shares by the current market price.

‍

Why is market capitalization important?

Market capitalization is a key indicator of a company's size, value, and market perception, influencing investor decisions and comparisons with competitors.

‍

An easy way to understand market capitalization is:

Think of it as a popularity contest for companies. The more people like and value a company, the higher its market cap, just like the most popular kid in school.

How To Calculate Market Capitalization

Market capitalization, or market cap, is the total market value of a company's outstanding shares. It is calculated by multiplying the total number of a company's outstanding shares by the current market price of a single share. The formula for market capitalization is:

Market Capitalization = Number of Outstanding Shares × Current Market Price per Share

‍

For example, if a company has 1,000,000 outstanding shares and the current market price per share is $50, the market capitalization would be:

Market Capitalization = 1,000,000 × $50 = $50,000,000

‍

Market capitalization is used to categorize companies into different sizes:

Large-cap: Companies with a market cap of $10 billion or more.

Mid-cap: Companies with a market cap between $2 billion and $10 billion.

Small-cap: Companies with a market cap between $300 million and $2 billion.

Micro-cap: Companies with a market cap below $300 million.

‍

Market capitalization is an important metric for investors, as it reflects the market's perception of a company's value and can help compare different companies within the same industry.

Although not publicly traded, understanding market capitalization gives us insight into our potential valuation were we to consider external investment or public offerings. This theoretical valuation helps guide our long-term strategic planning and investment attractiveness.