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Market Capitalization: What is it and Why Does it Matter

What is Market Capitalization?

Market capitalization (or Market cap) refers to the total aggregate dollar amount of a stock, cryptocurrency, index funds, or ETF.

Investors use market cap as a way to quickly determine how value an asset is when compared to other comparable investments.

Understanding Market Cap

Market cap is fairly easy to understand if you use the correct formula to determine the correct value. Here’s how you calculate market cap using simple math.

Formula and Calculation

The stock market formula for market cap is:

Market Cap = Price Per Share x Shares Outstanding

In order to calculate the market cap for a stock or ETF, you must multiply the price per share times the total outstanding shares.

Calculating the market cap of cryptocurrencies is a bit different because most coins have steady inflation and slowly increase the current supply available.

The crypto formula for market cap is:

Market Cap = Price Per Coin x Total Coin Supply

Types of Market Capitalization

Market cap represents a wide variety of different asset class sizes so you can separate stocks/crypto into separate buckets based on the total market cap.

Mega-Cap

Mega-cap companies are those with a market cap of $200 billion or more. They are the largest publicly traded companies by market value and represent some of the world’s biggest, most successful corporations.

As of Q3 2022, Tesla (TSLA) and Apple (AAPL) are good examples of mega-cap companies with a market cap of $500 billion and $1.2 trillion respectively.

Large-Cap

Large-cap companies are those with a market cap between $10 billion to $200 billion. These companies are also known as “Blue Chip” companies due to their large size, stable revenue, and consistent earnings.

Dividend investors will often target these companies in search of stable quarterly dividend income because many large cap, blue chip companies pay a quarterly dividend.

McDonalds and Coca Cola are two good examples of large-cap companies with a market cap of $188 billion and $275 billion respectively.

Mid Cap

Mid-cap stocks range from $2 billion to $10 billion in market cap and these companies are good targets for growth stocks investors who seek 10 to 20x investment returns over the next 5 years.

  • Mega
  • Large
  • Mid
  • Small
  • Micro
  • Nano

Importance of Market Capitalization

Resources for Finding Market Cap Numbers