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Market capitalization

 

 
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Market capitalization
 
 
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Market capitalization/capitalisation (aka market cap, mkt cap or capitalized/capitalised value) is a measurement of corporate or economic size
Wealth (economics)

In economics and business, wealth of a person or nation is the value of assets owned net of Liability#Financial accounting owed at a point in time....
 equal to the share price
Share price

A share price is the price of a single share of a company's stock. Once the stock is purchased, the owner becomes a Stock#Shareholder of the company that issued the share....
 times the number of shares outstanding
Shares outstanding

Shares outstanding are common shares that have been authorized, issued, and purchased by investors. They have voting rights and represent ownership in the corporation by the person or institution that holds the shares....
 of a public company
Public company

A public company usually refers to a company that is permitted to offer its registered Security for sale to the general public, typically through a stock exchange, but also may include companies whose stock is traded Over-the-counter via market makers who use non-exchange quotation services such as the OTCBB and the Pink Sheets....
. As owning stock
Share (finance)

File:Stora Kopparberg 1288.jpgIn finance, a share is a unit of account for various financial instruments including stocks , and investments in mutual funds, limited partnerships, and Real estate investment trust's....
 represents owning
Corporate governance

Corporate governance is the set of processes, customs, policies, laws, and institutions affecting the way a corporation is directed, administered or controlled....
 the company, including all its asset
Asset

In business and accounting, assets are everything of value that is owned by a person or company. It is a claim on the property your income of a borrower....
s, capitalization could represent the public opinion of a company's net worth
Net worth

In business, net worth is the total assets minus total outside liability of an individual or a company . For a company, this is called shareholders' equity and may be referred to as book value....
 and is a determining factor in stock valuation
Stock valuation

There are several methods used to value companies and their stocks. They attempt to give an estimate of their fair value, by using fundamental economic criteria....
. Likewise, the capitalization of stock market
Stock market

A stock market, or equity market, is a private or public Market system for the trade of Corporation stock and Derivative s of company stock at an agreed price; these are security listed on a stock exchange as well as those only traded privately....
s or economic region
Macroeconomics

Macroeconomics is a branch of economics that deals with the performance, structure, and behavior of a national or regional economy as a whole....
s may be compared to other economic indicator
Economic indicator

An economic indicator is a statistic about the Economics. Economic indicators allow analysis of economic performance and predictions of future performance....
s.






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Market capitalization/capitalisation (aka market cap, mkt cap or capitalized/capitalised value) is a measurement of corporate or economic size
Wealth (economics)

In economics and business, wealth of a person or nation is the value of assets owned net of Liability#Financial accounting owed at a point in time....
 equal to the share price
Share price

A share price is the price of a single share of a company's stock. Once the stock is purchased, the owner becomes a Stock#Shareholder of the company that issued the share....
 times the number of shares outstanding
Shares outstanding

Shares outstanding are common shares that have been authorized, issued, and purchased by investors. They have voting rights and represent ownership in the corporation by the person or institution that holds the shares....
 of a public company
Public company

A public company usually refers to a company that is permitted to offer its registered Security for sale to the general public, typically through a stock exchange, but also may include companies whose stock is traded Over-the-counter via market makers who use non-exchange quotation services such as the OTCBB and the Pink Sheets....
. As owning stock
Share (finance)

File:Stora Kopparberg 1288.jpgIn finance, a share is a unit of account for various financial instruments including stocks , and investments in mutual funds, limited partnerships, and Real estate investment trust's....
 represents owning
Corporate governance

Corporate governance is the set of processes, customs, policies, laws, and institutions affecting the way a corporation is directed, administered or controlled....
 the company, including all its asset
Asset

In business and accounting, assets are everything of value that is owned by a person or company. It is a claim on the property your income of a borrower....
s, capitalization could represent the public opinion of a company's net worth
Net worth

In business, net worth is the total assets minus total outside liability of an individual or a company . For a company, this is called shareholders' equity and may be referred to as book value....
 and is a determining factor in stock valuation
Stock valuation

There are several methods used to value companies and their stocks. They attempt to give an estimate of their fair value, by using fundamental economic criteria....
. Likewise, the capitalization of stock market
Stock market

A stock market, or equity market, is a private or public Market system for the trade of Corporation stock and Derivative s of company stock at an agreed price; these are security listed on a stock exchange as well as those only traded privately....
s or economic region
Macroeconomics

Macroeconomics is a branch of economics that deals with the performance, structure, and behavior of a national or regional economy as a whole....
s may be compared to other economic indicator
Economic indicator

An economic indicator is a statistic about the Economics. Economic indicators allow analysis of economic performance and predictions of future performance....
s. The total market capitalization of all publicly traded companies in the world was US$51.2 trillion in January 2007 and rose as high as US$57.5 trillion in May 2008 before dropping below US$50 trillion in August 2008 and slightly above US$40 trillion in September 2008.

Valuation

Market capitalization represents the public consensus on the value of a company's equity. A corporation, including all of its assets, may be freely bought and sold through purchases and sales of stock, which will determine the price of the company's shares. Its market capitalization is the share price multiplied by the number of shares in issue, providing a total value for the company's shares and thus for the company as a whole.

Many companies have a dominant shareholder, which may be a government entity, a family, or another corporation. Many stock market indices
Stock market index

A stock market index is a method of measuring a section of the stock market. Many indices are cited by news or financial services firms and are used to benchmark the performance of portfolios such as mutual funds....
 such as the S&P 500
S&P 500

The S&P 500 is a market value-weighted index published since 1957 of the prices of 500 market capitalization common stocks actively traded in the United States....
, Sensex
BSE Sensex

Bhavyata Vaddavalli, Divyata VaddavalliBSE Sensex or Bombay Stock Exchange Sensitive Index is a Stock market index composed of 30 stocks started in April, 1984....
, FTSE
FTSE 100 Index

The FTSE 100 Index is a share index of the 100 most highly market capitalisation UK company listed on the London Stock Exchange. The index began on 3 January 1984 with a base level of 1000; the highest value reached to date is 6950.6, on 30 December 1999....
, DAX
DAX

DAX 30 The L-DAX Index is an indicator of the German benchmark DAX 30 Index's performance after the Xetra electronic-trading system closes based on the floor trading at the Frankfurt Stock Exchange....
, Nikkei
Nikkei 225

is a stock market index for the Tokyo Stock Exchange . It has been calculated daily by the Nihon Keizai Shimbun newspaper since 1950. It is a price-weighted average , and the components are reviewed once a year....
, Ibovespa, and MSCI adjust for these by calculating on a free float basis, i.e. the market capitalization they use is the value of the publicly tradable part of the company.

Note that market capitalization is a market estimate of a company's value, based on perceived future prospects, economic and monetary conditions. Stock prices can also be moved by speculation
Speculation

Speculation is the assumption of the risk of loss, in return for the uncertain possibility of a reward. Only if one may safely say that a particular position involves no risk may one say, strictly speaking, that such a position represents an "investment." Financial speculation involves the trade, and short-selling of stocks, bond , commodity...
 about changes in expectations about profits or about mergers and acquisitions
Mergers and acquisitions

The phrase mergers and acquisitions refers to the aspect of corporate strategy, corporate finance and management dealing with the buying, selling and combining of different corporation that can aid, finance, or help a growing company in a given industry grow rapidly without having to create another business entity....
.

It is possible for stock markets to get caught up in an economic bubble
Economic bubble

An economic bubble is ?trade in high volumes at prices that are considerably at variance with Intrinsic value ?.While some economists deny that bubbles occur, the cause of bubbles remains a challenge to those who are convinced that asset prices often deviate strongly from intrinsic values....
, like the steep rise in valuation of technology stocks in the late 1990s followed by the dot-com crash
Dot-com bubble

The "dot-com bubble" was a economic bubble covering roughly 1995?2001 during which stock markets in Western world saw their value increase rapidly from growth in the new quaternary sector of industry and related fields....
 in 2000. Speculation can affect any asset class, such as gold
Gold

Gold is a chemical element with the symbol Au and atomic number 79. It is a highly sought-after precious metal, having been used as money, as a store of value, in jewelry, in sculpture, and for ornamentation since the beginning of recorded history....
 or real estate
Real estate

Real estate is a law term that encompasses land along with anything permanently affixed to the land, such as buildings, specifically property that is fixed in location.. In such events, valuations rise disproportionately to what many people would consider the fundamental value of the assets in question. In the case of stocks, this pushes up market capitalization in what might be called an "artificial" manner. Market capitalization is therefore only a rough measure of the true size of a market.

Categorization of companies by capitalization

Traditionally, companies are divided into large-cap, mid-cap, and small-cap. People have rules of thumb to determine category from market capitalization. These need to be adjusted over time 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 they may be different for different countries. A common rule of thumb may look like:

  • Large-cap: over $5 billion
  • Mid-cap: from $1 billion to $5 billion
  • Small-cap: under $1 billion


Different numbers are used by different indexes; there is no official definition of or general agreement about the exact cutoffs.

See also

  • Financial ratio
    Financial ratio

    In finance, a financial ratio or accounting ratio is a ratio of two selected numerical values taken from an enterprise's financial statements....
  • Fundamental analysis
    Fundamental analysis

    Fundamental analysis of a business involves analyzing its financial statements and health, its management and competitive advantages, and its competitors and markets....
  • Growth stock
    Growth stock

    In finance, Growth Stocks are stocks that appreciate in value and yield a high return on equity . Analysts compute ROE by taking the company's net income and dividing it by the company's equity....
  • Market price
    Market price

    Market price is an economic concept with commonplace familiarity. It is the price that a good or service is offered at, or will fetch, in the marketplace....
  • Market trends
    Market trends

    A Market trend is the direction in which a financial market is moving. Market trends can be classified as primary trends, secondary trends , and secular trends ....
  • Technical analysis
    Technical analysis

    Technical analysis is a security analysis technique that claims the ability to forecast the future direction of prices through the study of past market data, primarily price and volume....
  • List of finance topics
    List of finance topics

    Topics in finance include:...
  • List of corporations by market capitalization
    List of corporations by market capitalization

    The following is a list of Public company having the greatest market capitalization. Market capitalization is calculated from the share price multiplied by the number of shares issued....
  • Concentrated stock
    Concentrated stock

    Concentrated stock is an equity making up a substantial part of the investor's Portfolio . The major risk associated with such a portfolio is a lack of Diversification ; concentrated stock makes a large portion of the investor's wealth dependent on the performance of one particular stock....
  • Free float
  • Public float
    Public float

    Public float is the portion of a company's outstanding shares that is in the hands of public investors, as opposed to company officers, directors, or controlling-interest investors....
  • Restricted stock
    Restricted stock

    Restricted stock, also known as letter stock or restricted securities, refers to stock of a company that is not fully transferable until certain conditions have been met....
  • Shares authorized
    Shares authorized

    Shares authorized is the maximum number of shares that a company can issue. This number is specified in the company's articles of association but can be changed by shareholder approval....
  • Treasury stock
    Treasury stock

    A treasury stock or reacquired stock is stock which is bought back by the issuing company, reducing the amount of outstanding stock on the open market ....


External links

  • - from the Washington State (U.S.) government web site