market capitalization
The total market value of a company's outstanding shares, calculated by multiplying share price by total shares.
Example
“Apple's market capitalization exceeded $3 trillion, making it the most valuable company in the world.”
Memory Tip
Market cap = the market's CAPITAL valuation of a company. Stock price × shares = market cap.
Why It Matters
Market capitalization helps you understand the size and value of companies you might invest in or whose products you use daily. It influences whether a company is considered stable and established or small and growth-oriented, which affects investment risk and potential returns.
Common Misconception
Many people think market capitalization represents the actual cash or assets a company has, but it only reflects what investors are willing to pay for ownership at that moment. A company worth 100 billion dollars in market cap might have far less in actual cash or assets available.
In Practice
If a company has 1 billion shares outstanding and each share trades at 50 dollars, the market capitalization is 50 billion dollars. If the share price rises to 60 dollars due to positive news, the market cap jumps to 60 billion dollars without the company having sold anything or earned more money that day.
Etymology
Market (where trading occurs) + capitalization (total capital value) — the market's total value of a company.
Common Misspellings
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Related Terms
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See Also
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