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Market capitalization, sometimes referred to as market cap, is the total value of a publicly traded company's outstanding common shares owned by stockholders.[2]
Market capitalization is equal to the market price per common share multiplied by the number of common shares outstanding.[2][3][4]
Description
[edit]Market capitalization is sometimes used to rank the size of companies. 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 also used in ranking the relative size of stock exchanges, being a measure of the sum of the market capitalizations of all companies listed on each stock exchange. The total capitalization of stock markets or economic regions may be compared with other economic indicators (e.g. the Buffett indicator). The approximate total market capitalization of all publicly traded companies was:
Historical estimates of world market cap
[edit]Total market capitalization of all publicly traded companies in the world from 1975 to 2020.[8]
| Year | World market cap | Number of listed companies | |
|---|---|---|---|
| (in mil. US$) | (% of GDP) | ||
| 1975 | 1,149,245 | 27.2 | 14,577 |
| 1980 | 2,525,736 | 29.6 | 17,273 |
| 1985 | 4,684,978 | 47.0 | 20,555 |
| 1990 | 9,519,107 | 50.8 | 23,732 |
| 1991 | 11,340,785 | 56.8 | 24,666 |
| 1992 | 10,819,256 | 50.2 | 24,947 |
| 1993 | 13,897,390 | 61.7 | 28,300 |
| 1994 | 14,639,924 | 60.9 | 30,290 |
| 1995 | 17,263,728 | 64.0 | 33,379 |
| 1996 | 19,806,691 | 72.3 | 35,617 |
| 1997 | 22,029,761 | 80.7 | 36,946 |
| 1998 | 24,555,201 | 89.6 | 37,928 |
| 1999 | 33,181,159 | 115.1 | 38,414 |
| 2000 | 30,925,434 | 101.1 | 39,892 |
| 2001 | 26,792,162 | 88.4 | 40,157 |
| 2002 | 22,802,792 | 72.7 | 38,894 |
| 2003 | 31,107,425 | 84.9 | 41,051 |
| 2004 | 36,540,980 | 89.2 | 38,724 |
| 2005 | 40,512,446 | 92.6 | 39,096 |
| 2006 | 50,074,966 | 106.1 | 43,104 |
| 2007 | 60,456,082 | 114.0 | 44,034 |
| 2008 | 32,418,516 | 56.2 | 43,949 |
| 2009 | 47,471,293 | 83.8 | 42,669 |
| 2010 | 54,259,518 | 87.3 | 43,427 |
| 2011 | 47,521,341 | 68.8 | 44,323 |
| 2012 | 54,503,237 | 78.4 | 43,772 |
| 2013 | 64,367,842 | 89.0 | 44,853 |
| 2014 | 67,177,254 | 90.3 | 45,743 |
| 2015 | 62,268,184 | 94.5 | 43,983 |
| 2016 | 65,117,714 | 97.1 | 43,806 |
| 2017 | 79,501,948 | 111.1 | 43,440 |
| 2018 | 68,893,044 | 91.9 | 43,554 |
| 2019 | 78,825,583 | 108.4 | 43,248 |
| 2020 | 93,686,226 | 134.7 | 49,839 |
| 2021 | 111,159,259 | 131.8 | 51,337 |
| 2022 | 93,688,922 | 106.2 | 47,926 |
| 2025 | 159,360,000 | 158.1 | 48,669 |
Calculation
[edit]Market cap is given by the formula , where MC is the market capitalization, N is the number of common shares outstanding, and P is the market price per common share.[2]
For example, if a company has 4 million common shares outstanding and the closing price per share is $20, its market capitalization is then $80 million. If the closing price per share rises to $21, the market cap becomes $84 million. If it drops to $19 per share, the market cap falls to $76 million. This is in contrast to mercantile pricing where purchase price, average price and sale price may differ due to transaction costs.
Not all of the outstanding shares trade on the open market. The number of shares trading on the open market is called the float. It is equal to or less than N because N includes shares that are restricted from trading. The free-float market cap uses just the floating number of shares in the calculation, generally resulting in a smaller number.
Market cap terms
[edit]Traditionally, companies were divided into large-cap, mid-cap, and small-cap.[9][3] The terms mega-cap and micro-cap have since come into common use,[10][11] and nano-cap is sometimes heard. Large caps have a slow growth rate as compared to small caps.[2] Different numbers are used by different indexes;[12] there is no official definition of, or full consensus agreement about, the exact cutoff values. The cutoffs may be defined as percentiles rather than in nominal dollars. The definitions expressed in nominal dollars need to be adjusted over decades due to inflation, population change, and overall market valuation (for example, $1 billion was a large market cap in 1950, but it is not very large now), and market caps are likely to be different country to country.
In the United States
[edit]FINRA's investor education materials state that the following is a typical (not official) categorization of stocks by market capitalization:[13]
| Category | Market capitalization of individual stock (US$ billions) | |
|---|---|---|
| (FINRA, 2022) | (GDP deflator adjusted to 2023 US$)[14] | |
| Mega-cap | ≥ $200 | ≥ $207 |
| Large-cap | $10 – $200 | $10 – $207 |
| Mid-cap | $2 – $10 | $2 – $10 |
| Small-cap | $0.25 – $2 | $0.26 – $2 |
| Micro-cap | < $0.25 | < $0.26 |
The U.S. Securities and Exchange Commission notes that nano-cap stocks, in cases when they're separated from micro-caps, are typically defined as stocks with a market capitalization less than $50 million (as of 2013);[15] which is equivalent to less than $64 million in 2023.[14]
S&P Dow Jones Indices defines 3 major US indices segmented by market capitalization. The components of these indices are selected by committee, but in order to be eligible, among other requirements,[16] a stock's market capitalization at the time of addition must be within the respective range in the following table:
| Index | Category | Market capitalization required for addition |
|---|---|---|
| S&P 500 | Large-cap | ≥ US$20.5 billion |
| S&P 400 | Mid-cap | $7.4 billion – $20.5 billion |
| S&P 600 | Small-cap | $1 billion – $7.4 billion |
These market cap eligibility criteria are only for addition to these indices, not for continued membership in an index. As a result, an S&P index constituent that appears to violate criteria for addition to that index is not removed unless ongoing conditions warrant an index change.[17]
See also
[edit]- Authorised capital
- List of countries by stock market capitalization
- List of public corporations by market capitalization
- Market price
- Share repurchase
- Treasury stock
References
[edit]- ^ "Market highlights for first half-year 2010" (PDF). World Federation of Exchanges. July 2010. Archived from the original (PDF) on July 22, 2013. Retrieved May 29, 2013.
- ^ a b c d Graham, John R; Smart, Scott B.; Megginson, William J. (2010). Corporate Finance (3rd ed.). Mason OH: South-Western Cengage Learning. p. 387. ISBN 9780324782967.
- ^ a b Fernando, Jason (March 5, 2024). "Market Capitalization: What It Means for Investors". Investopedia. Retrieved February 25, 2025.
- ^ "Definition of market capitalisation". Financial Times Lexicon. Financial Times. Archived from the original on September 25, 2016. Retrieved February 19, 2013.
- ^ "FY 2023 Market Highlights" (PDF). World Federation of Exchanges. March 8, 2024. Archived from the original on September 17, 2024. Retrieved September 17, 2024.
- ^ WFE Statistics Team (February 7, 2025). "FY 2024 Market Highlights" (PDF). World Federation of Exchanges. Retrieved March 1, 2025.
- ^ WFE Statistics Team (February 2025). "Dashboard - February 2025". Focus. No. 93. World Federation of Exchanges. Retrieved February 27, 2025.
- ^ "Market capitalization of listed domestic companies (current US$) | Data". Data.WorldBank.org. Retrieved September 20, 2021.
- ^ Collin, Victoria (July 2, 2021). "Large Cap, Mid Cap, and Small Cap Stocks". Financial Edge. Retrieved February 25, 2025.
- ^ Chen, James (April 27, 2022). "Mega Cap: Companies With Market Caps Above $200 Billion". Investopedia. Retrieved February 25, 2025.
- ^ Chen, James (July 12, 2022). "Micro-Cap: Definition in Stock Investing, Risks Vs. Larger Caps". Investopedia. Retrieved February 25, 2025.
- ^ "What is Market Capitalization? definition and meaning". InvestorWords. WebFinance, Inc. 2020. Archived from the original on October 1, 2020. Retrieved August 3, 2008.
- ^ a b "Market Cap Explained". FINRA. September 30, 2022. Archived from the original on February 4, 2025. Retrieved February 25, 2025.
- ^ a b Johnston, Louis; Williamson, Samuel H. (2023). "What Was the U.S. GDP Then?". MeasuringWorth. Retrieved November 30, 2023. United States Gross Domestic Product deflator figures follow the MeasuringWorth series.
- ^ "Microcap Stock: A Guide for Investors". U.S. Securities and Exchange Commission. September 18, 2013. Archived from the original on February 26, 2025. Retrieved February 25, 2025.
- ^ "S&P U.S. Indices Methodology" (PDF). S&P Dow Jones Indices. February 20, 2025. Retrieved February 27, 2025.
- ^ a b "S&P Dow Jones Indices Announces Update to S&P Composite 1500 Market Cap Guidelines" (PDF). S&P Dow Jones Indices. January 2, 2025. Retrieved January 7, 2025.
- "Global Market Capitalization Tracker". MarketCap.Company. Retrieved April 1, 2025.
External links
[edit]
- Market capitalization of listed domestic companies (current US$) by country since 1975 – World Bank dataset