Market capitalization

What is market cap

Market capitalization (market cap) is the total market value of a company's shares: the current share price multiplied by the number of shares outstanding.

It measures what the market is currently pricing the company's equity at. It is not the company's sales, profit, assets or cash.

Market cap formula

Market cap = share price × shares outstanding

• Share price is usually the last traded price on the exchange.
• Shares outstanding are the shares issued and held by investors, including insiders. Shares the company has bought back and holds as treasury shares are excluded.

Because the price changes during the trading session, market cap changes with it.

Worked example (hypothetical)

Take two invented companies:

Company A's high share price does not make it the larger company. If Company B has many more shares, its market cap can be larger even though each share costs less. You need to multiply both inputs before you can compare companies.

If Company A's share price rises and its share count stays the same, its market cap rises in the same proportion. If Company B issues new shares and the price holds, its market cap also rises. The second case is called dilution: each existing share is now a smaller part of the company.

Where you see the term

• Stock exchange and data pages list market cap next to price, volume and the P/E ratio.
• News groups companies as "large-cap", "mid-cap" or "small-cap". There is no single official cut-off between these groups. Each data provider or index sets its own.
• Index rules: many indices weight their members by market cap, often adjusted for free float. The Nasdaq-100 behind NAS100 and USTEC uses a modified market-cap weighting. The Dow Jones behind US30 is price-weighted, so market cap does not set its weights.
• Trading platforms show CFD prices on indices and shares. They usually do not show market cap, so traders look it up in exchange or company data.

Precise definition and edge cases

• Basic vs diluted: the basic figure uses shares outstanding. A diluted figure also counts options, warrants and convertibles that could become shares.
• Free-float market cap counts only shares that are available to trade. It leaves out large strategic or government holdings.
• Multiple share classes: total market cap adds the value of every class, and each class is priced separately. An unlisted class has to be valued at an assumed price.
• Depositary receipts: an ADR or GDR represents a set number of underlying shares, so convert using that ratio before calculating.
• Enterprise value adds debt and subtracts cash. It is used to compare companies whose capital structures differ.
• Book value is the accounting value of equity. A gap between market cap and book value reflects what the market expects, not a fixed fact.
• Private and delisted companies have no traded price, so they have no market cap in this sense.

A large market cap does not mean a share is safe, cheap or expensive. Share prices and index CFDs can fall sharply. With leverage, a small price move can cause losses larger than you expect.

Related terms

Free float · Blue chip · Book value · Beta · Stock indices · Fundamental analysis · Bull market · Bear market · Trading glossary

Frequent questions

What does market cap mean in simple words?

It is the price the market puts on all of a company's shares together: the share price times the number of shares outstanding.

Does a higher share price mean a bigger company?

No. Market cap depends on the share count as well. A company with a low share price and many shares can be worth more than one with a high share price and few shares.

Is market cap the same as company value?

Not exactly. Market cap values the equity only. Enterprise value also adds the company's debt and subtracts its cash.

Why does market cap change every day?

The share price changes with every trade, and market cap is calculated from that price.