Market capitalization, also called market cap, means the total dollar market value of a company's all outstanding shares. It represents the aggregate value of a company or stock.
Market cap is calculated by multiplying a company's shares outstanding by the current market price of one share. The investment community uses this figure to determining a company's size, as opposed to sales or total asset figures.
Company size is a basic determinant of asset allocation and risk-return parameters for stocks and stock mutual funds. The term should not be confused with a company's "capitalization," which is a financial statement term that refers to the sum of a company's shareholders' equity plus long-term debt.
There are several approximations of market cap to determine the size of a business. There are different definitions from different sources, but the following is an approximate listing:
Mega Cap: Market cap of $200 billion and greater
Big/Large Cap: $10 billion to $200 billion
Mid Cap: $2 billion to $10 billion
Small Cap: $300 million to $2 billion
Micro Cap: $50 million to $300 million
Nano Cap: Under $50 million
Different types of investors will invest in companies with market caps suited to their liking. Investments generally become more risky, and there is more potential for gain and loss as the market cap decreases.
Some investors tend to invest mostly in mid and small cap stocks because they want to maintain a riskier portfolio. Others have companies with different categories of market caps in order to maintain a mixed portfolio.
The top 10 largest U.S. companies by market cap are: Exxon Mobil Corp., Apple Inc., Microsoft Corp., International Business Machines, Chevron Corp., Google Inc., Berkshire Hathaway, General Electric, Wal-Mart Stores, and AT&T Inc.
Take a look at the top 10 U.S. companies by market cap by clicking start.