2 Answers: What is Market Capitalization when buying Stocks?

Question

I would like to understand more about what is meant by Market Capitalization. I hear people talking about it and market cap etc and am looking for ways to evaluate stocks to buy.

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Anthony Burgess 3 months 2 Answers 32 views 0

Answers ( 2 )

  1. Good question Anthony. Market Capitalization is an important understanding when working out the value of a stock (to you and your portfolio) and whether it is something you are comfortable buying.

    You’ll often hear companies refer to as Large-Cap, Mid-Cap, or Small-Cap. All these terms refer to the overall Market Capitalization of a company. This is basically a measure of a company size. In other words, it can be described as the dollar value of the company, thus calculated by multiplying the number of shares outstanding by the current market price.

    The shares outstanding of a company can be found in any financial website such as Yahoo! or Google Finance, but those are just meant to represent the company’s stock held by all of its shareholders.

    There’s no specific point in order to qualify a company as being a Large-Cap, Mid-, or Small-Cap but usually, you’ll see a Small-Cap company being valued at less than $1 billion, a Mid-Cap company between $1-5 billion, and Large-Cap, over $5 billion.

    Let’s just look at a quick example in order to illustrate the concept. I use Apple stock as the example. Say Apple has a stock price of $500 per share and has 900 million shares outstanding. If you were to multiply both figures, you would find out that its Market Capitalization stands at $450 billion, earning in a spot as a Large-Cap company.

    Larger-Cap companies will tend to be much less vulnerable to the ups and downs of the economy, a large part due to their huge financial reserves. On the other hand, Small-Cap companies are much more vulnerable to turmoil but can provide for a lot more growth versus Large-Caps.

  2. Good answer. It is vitally important to the understanding of stocks is learning how they are described.

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