The calculation does not include treasury shares, which are shares of the company that it has repurchased. Knowing the total value of stocks can help investors distinguish between risky and conservative investments, or help them to diversify based on their particular goals. For example, large companies might be more stable with less room for growth in their returns, but might be the right choice for a portfolio with a short time horizon or an investor with a low risk tolerance. Market capitalization, or market cap, provides part of the information to make these decisions. Small-cap stocks are companies that have a market capitalization value between $300 million and $2 billion. Small caps are often new companies, focused on a niche market, or struggling financially.

Market capitalization vs. enterprise value

While small caps tend to be volatile and rarely offer dividends, they have a lot of growth potential and are often undervalued. Small-cap stocks have relatively lower market values because these tend to be younger growth companies. Because of their growth orientation, they may be riskier since they spend their revenues on growth and expansion. Small-cap stocks are therefore often more volatile than those of larger companies. Generally, large-cap stocks experience slower growth and are more likely to pay dividends than faster-growing, small- or mid-cap stocks. Market cap can be a valuable tool for investors watching stocks and evaluating potential investments.

Market Capitalization: What It Means for Investors

For example, if a company has 1 million shares of outstanding stock and the stock currently trades at $50 per share, then its current market cap is $50 million. Market cap fluctuates with a company’s share price, and so can change over time or even over the course of a single trading day. Market cap is calculated by multiplying a company’s outstanding shares by the current market price of one share. Since a company has a given number of outstanding shares, multiplying X with the per-share price represents the total dollar value of the company. Sometimes small-cap stocks outperform larger stocks, but they also tend to be riskier or more volatile investments. Once a company grows very large, it may no longer be as nimble or able to take advantage of new growth opportunities.

How a company’s market cap is classified

Because they’re so established, large-cap companies are generally more stable. They’re reliable in terms of dividend payouts and typically don’t grab headlines the way some flashier stocks might. But this understated nature is actually what makes them attractive to investors — large-cap stocks are boring, which means they don’t often gambling with digital and virtual currencies fluctuate as wildly as small- or mid-cap stocks. Market cap is calculated by multiplying the number of stock shares outstanding by the current share price. Shares outstanding includes all shares — those available to the public as well as restricted shares available to and held by specific groups. Market Capitalization (Market Cap) is the most recent market value of a company’s outstanding shares.

The securities of smaller, less well known companies can be more volatile than those of larger companies. This may influence which products we review and write about (and where those products appear on the site), but it in no way affects our recommendations or advice, which are grounded in thousands of hours of research. Our partners cannot pay us to guarantee favorable reviews of their products or services.

1. Comparing the two companies by solely looking at their stock prices would not give a true representation of their actual relative values.
2. The securities of smaller, less well known companies can be more volatile than those of larger companies.
3. The P/E ratio looks at how expensive a company’s shares are relative to its earnings per share.
4. Small-cap share prices may be more volatile but provide greater growth opportunities than large caps.
5. Moreover, small-cap companies tend to show higher growth potential than their larger counterparts and, as such, are likely to provide investors with more opportunities for capital gains.

Market capitalization can be used to determine a variety of key performance metrics, including price-to-earnings and price-to-free-cash flow. It’s important to know that a company’s market capitalization is the total value of its equity only. A company’s Enterprise Value is the value of the entire business, including both equity and debt capital. It measures only the equity component of a company’s capital structure, and does not reflect management’s decision as to how much debt (or leverage) is used to finance the firm. A more comprehensive measure of a firm’s size is enterprise value (EV), which gives effect to outstanding debt, preferred stock, and other factors. For insurance firms, a value called the embedded value (EV) has been used.

“It is much more likely that one can hit a home run by investing in a small-cap stock, but it is also more likely that a strikeout will occur,” says Johnson. The P/B book ratio compares the price of a company’s stock to that organization’s book value, which is how much the entity would be worth if it resolved all its debts and sold off its assets. The P/E ratio looks at how expensive a company’s shares are relative to its earnings per share. This can give you a quick sense of whether a company is undervalued or overvalued.

Outstanding shares are the total amount of shares currently held by all its shareholders, including share blocks held by institutional investors and restricted shares owned by the company’s officers and insiders. We believe everyone should be able to make financial decisions with confidence. Market cap is often used as a baseline for analysis as all other financial metrics must be viewed through this lens. For example, a company could have had twice as much revenue as any other company in the industry. However, if the company’s market cap is four times as large, the argument could be made that the company is underperforming. The market is trading cryptocurrency profitable cap does not determine the amount the company would cost to acquire in a merger transaction.

If the closing price per share rises to $21, the market cap becomes $84 million. This is in contrast to mercantile pricing where purchase price, average price and sale price may differ due to transaction costs. For instance, say a company has 12 million shares currently selling can you purchase cryptocurrencies with paypal at $32 per share.