Market Capitalization

February 22, 2010

In the investment world of stocks, bonds, bulls and bears, there are many terms that you may have heard about but are not familiar with. One of those terms is market capitalization.

Companies are classified in many ways. These classifications are used to help determine how much a company is worth. Market capitalization (or market cap for short) is one way of doing that. It is a measure of value that takes into account the total number of outstanding shares that a company has, multiplied by the current price of the stock.

Most people would normally think that a large wealthy company has more value, but that may not be true according the concept of market capitalization. Some smaller companies that are stable may have a larger market capitalization. When you are looking to invest, market capitalization is important.

Within market capitalization there are also other terms that you’ll want to become familiar with. They are mega, large, mid, small and micro cap. Following are the market capitalization levels that is typically associated with each level:

  • Mega Cap – $200 billion or more
  • Large Cap – $10 billion to $200 billion
  • Medium Cap – $2 billion to $10 billion
  • Small Cap – $300 million to $2 billion
  • Micro Cap – $50 million to $300 million
  • When looking at mutual funds and other investment vehicles you will now know what market capitalization is, and wisely choose the right mix of investments for you.

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