Part 16: Market Capitalization

Welcome back to The Apricot Investor’s Glossary. In this blog post, we’ll learn about a key metric used to understand the size and value of companies in the stock market: market capitalization.

What is Market Capitalization?

Market capitalization (or “market cap”) is how much a company is worth according to the stock market. It reflects the market’s current perception of a company’s value. Market cap is heavily influenced by investor sentiment and market trends, but it doesn’t necessarily reflect its intrinsic value, which is a more comprehensive assessment that considers a company’s assets, liabilities, earnings, and future growth prospects. Essentially, market capitalization is a snapshot of a company’s value at a specific moment in time, based on its current share price. 

How is it Calculated?

It’s calculated by taking the current price of one share of the company’s stock and multiplying it by the total number of shares available:

Market Capitalization = Current Share Price * Total Number of Shares Outstanding

This figure tells you how much the entire company is worth according to the stock market.

For example, if a company has 1 million shares outstanding and each share is trading at $50, its market cap would be $50 million. This figure is widely used by investors to quickly assess the size and value of a company relative to others in the market.

Why Does Market Cap Matter?

Market capitalization helps investors:

• Assess a company’s size: It categorizes companies into small-cap, mid-cap, and large-cap, providing a way to understand their scale and potential for growth.
• Compare companies within the same industry or sector.
• Assess risk: Generally, larger-cap companies are considered more stable and less volatile than smaller-cap companies.

Market Cap Categories

While the exact cutoffs can vary, here’s a general classification:

• Small-cap: Generally below $2 billion
• Mid-cap: Between $2 billion and $10 billion
• Large-cap: Above $10 billion

Market capitalization is a fundamental concept for understanding the stock market. It provides valuable insights into a company’s size, value, and potential risk, helping investors make informed decisions.

It’s important to remember that investments are subject to market fluctuations and carry inherent risks. Consider your financial goals and risk tolerance before investing.

Apricot Capital is regulated by the Central Bank of Armenia.

The examples in this text are for illustrative purposes only. This does not constitute investment advice or a recommendation to buy or sell any specific investment instrument. The past performance mentioned in this text is not indicative of future results.