What is market cap and how do you calculate it? | Fidelity (2024)

A quick way to estimate a company's value.

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What is market cap and how do you calculate it? | Fidelity (1)

Key takeaways

  • Market cap, or market capitalization, is one way of measuring a company's total value, based on outstanding shares of stock.
  • A company's market cap will fluctuate with its share price.
  • Investors can use market cap to gauge public interest and company strength.

Market cap, or market capitalization, is a simple investing concept that can help you better understand a company's market value. Knowing a company's market cap might help you gauge its risks and help you decide whether a stock or fund belongs in your portfolio. And if it earns a place in your investment lineup, market cap could help you decide how much you should own.

What is market cap?

Market cap is the total dollar value of a company's outstanding shares of stock. For example, if a company has 1 million shares of outstanding stock and the stock currently trades at $50 per share, then its current market cap is $50 million. Market cap fluctuates with a company's share price, and so can change over time or even over the course of a single trading day.

Why is market capitalization important?

Market cap is essentially a quick estimate of a company's value, in dollar terms.

It's a back-of-the-envelope way of putting a number on a company, but it's just one way of measuring this. Imagine that you were estimating the value of a country. You could measure it by the dollar value of the economy, or the size of the population, or the square acreage of the land. Measuring a company is similarly complex, but market cap is a simple and popular way of estimating its value and size quickly.

A company's market cap might help give you a sense of how risky its stock is. Larger companies are often more established and have less volatile stocks. Smaller companies may have more volatile stocks, but in some cases may be able to grow faster than very large companies. And of course, many specific companies will defy those generalizations.

Market cap is also important when building a portfolio. Understanding market cap may help you decide where a stock or fund fits into your asset allocation, plus how much of it you want to own. For instance, if you've decided on an asset allocation of 70% stocks and 30% bonds, you might spread that 70% among companies of various market capitalizations, to align with your risk tolerance.

What could impact a company's market cap?

Anything that impacts a company's stock price will also impact its market cap. For example, if a company is perceived as successful, perhaps due to new products or growing profits, investors may want to get in on the action and buy shares. The price of that company's stock may then rise, driving the market cap up along with it. On the flip side, if a company starts losing money or faces a major scandal, then investors may start selling shares—taking the stock price and market cap lower.

Market-cap segments

Companies are generally sorted into 3 main market-cap segments: large-cap, mid-cap and small-cap. Exactly where you draw the lines between these 3 groups isn't set in stone, and some investors may have different opinions as to what number qualifies a company for which group. But the following are commonly used definitions for each group.

Large-cap companies

Large-cap companies generally have a market cap of $10 billion or more. These are often well-established companies. Some large-cap companies might be mature businesses that pay dividends. Large-cap companies, as a group, may pose less risk and volatility to investors than smaller companies. But when companies become very large their growth rates can slow, so they might also offer less growth potential than some smaller companies.

Mid-cap companies

Mid-cap companies are those that fall between large- and small-cap companies, and are generally considered to be companies with a market cap between $2 billion and $10 billion. As a group, their risk level is typically also considered to be a middle ground between large- and small-caps, with potentially less risk than small caps but more than large caps.

Small-cap companies

Small-cap companies generally have market caps between $250 million and $2 billion. Small caps are often younger companies that are aiming to grow their businesses quickly. When small caps are successful, they might be able to show fast growth and strong stock gains. But because these companies may be less stable, less well-established, and have less access to cash, they might also be more vulnerable to downturns or even failure, and so can come with greater risk.

In addition to those 3 main categories, there are 2 more categories at the most extreme ends of the scale. The largest companies, such as those with market caps of $200 billion or more, are often called mega-caps. And the smallest companies, such as those with values of less than $250 million, are typically considered micro-caps.

How to calculate market cap

You can calculate a company's market cap by using the market capitalization formula.

Market cap = number of outstanding shares × price per share

For instance, say a company has 12 million shares currently selling at $32 per share. That comes out to a market cap of $384 million, which puts this company in the small-cap category today. Now, if the company grows and its share price eventually increases to $184, then its market cap increases to $2.208 billion. At that point, it might start to be considered a mid-cap company.

Market cap vs. free-float market cap

Market cap considers all of a company's outstanding shares, and is a common measure used to describe a company's value.

Free-float market cap considers only shares that are considered to be freely available for trading in the market, and is a common measure used in index weightings. Free-float market cap takes market cap and subtracts for shares that are unlikely to be traded. This typically means subtracting shares held by officers and directors of the company, those held by another publicly traded company, and those held by certain other entities.1

Most major market-cap-weighted stock indexes, like the S&P 500® and Russell 2000 use free-float market cap in determining how large of a weighting to assign companies.

How to consider market cap when investing

With a solid understanding of market cap now under your belt, here are some ways to consider using it as you're researching investments and constructing your portfolio.

Choose an appropriate asset allocation

Successful investing starts with a well-thought-out and well-rounded plan. Whether you do the research yourself to choose an asset allocation, use an online tool to help guide you, or work with a financial advisor to build one, it's important to have a strategy that's appropriate for your needs and situation. The 3 key concepts of risk tolerance, risk capacity, and time horizon can help guide you to a suitable plan. (Read more about the 3 keys to choosing investments.)

Evaluate ways to diversify

Within the stock portion of your portfolio, you might consider diversifying among large-cap, mid-cap, and small-cap companies. That's because there might be times when one of these groups performs well, but another doesn't. (Read more in our guide to diversification.)

Consider keeping it simple with ETFs and mutual funds

If you're building a portfolio yourself, it can be a lot of work to analyze and choose individual companies to invest in, plus assemble a well-diversified portfolio of individual stocks. ETFs and mutual funds might be able to help you achieve your targeted asset allocation, including your desired allocation among market-cap segments, without having to research hundreds of companies yourself.

Investors interested in researching investment options across various market-cap segments can use Fidelity's Stock Screener, Mutual Fund Evaluator,or ETF/ETP screener.

What is market cap and how do you calculate it? | Fidelity (2024)


What is market cap and how do you calculate it? | Fidelity? ›

Market cap is the total dollar value of a company's outstanding shares of stock. For example, if a company has 1 million shares of outstanding stock and the stock currently trades at $50 per share, then its current market cap is $50 million.

What is considered a good market cap? ›

Sizing up stocks

Large-cap: Market value of $10 billion or more; generally mature, well-known companies within established industries. Midcap: Market value between $3 billion and $10 billion; typically established companies within industries experiencing or expected to experience rapid growth.

What is market cap simplified? ›

Market capitalization, or market cap, is one measurement of a company's size. It's the total value of a company's outstanding shares of stock, which include publicly traded shares plus restricted shares held by company officers and insiders.

What is the relationship between market cap and stock price? ›

How Does Market Cap Affect Stock Price? Market cap does not influence share prices. It works the other way around. Market cap is arrived at by multiplying the share price by the number of shares outstanding.

Does market cap mean net worth? ›

No market cap is not the same as net worth. Net worth is the book value (Assets - Liabilities). The market cap of a company is the value of all the company shares trading in the stock market. The market cap could be higher or lower than the book value.

What is the difference between market cap and company value? ›

Market capitalization is the number of a company's shares outstanding multiplied by the current price per single share. Market value is more complicated. It's assessed using numerous metrics and multiples including price-to-earnings, price-to-sales, and return-on-equity.

Why is market cap so important? ›

It allows investors to size up a company based on how valuable the public perceives it to be. The higher the value, the "bigger" the company. The size and value of a company can inform the level of risk you might expect when investing in its stock, as well as how much your investment might return over time.

What is market cap with example? ›

The Market Cap is equal to the current share price multiplied by the number of shares outstanding. The investing community often uses market capitalization value to rank companies and compare their relative sizes in a particular industry or sector.

Is market cap real money? ›

Market capitalization (or market cap) is the total dollar value of all the shares of a company's stock — or, in the case of Bitcoin or another cryptocurrency, of all the coins that have been mined.

What company has the highest market cap? ›


What is a good PE ratio? ›

Typically, the average P/E ratio is around 20 to 25. Anything below that would be considered a good price-to-earnings ratio, whereas anything above that would be a worse P/E ratio.

Does market cap mean equity? ›

Market capitalization is the total dollar value of all outstanding shares of a company. Equity is a simple statement of a company's assets minus its liabilities. It is helpful to consider both equity and market capitalization to get the most accurate picture of a company's worth.

What does Nasdaq mean? ›

What is Nasdaq? The Nasdaq is the second-largest stock exchange in the world. Nasdaq, which is an acronym for National Association of Securities Dealers Automatic Quotation System, was established in 1971. The US-based exchange is also the first-ever electronic stock market in the world.

How to calculate price based on market cap? ›

Key Takeaways

Market cap is calculated by taking the current share price and multiplying it by the number of shares outstanding. For example, a company with 50 million shares and a stock price of $100 per share would have a market cap of $5 billion.

Is a $10 billion market cap good? ›

Market Cap and Company Size

Large-cap companies typically have a market capitalization of $10 billion or more and represent major players in well-established industries and sectors.1 These companies generally reward investors with a consistent increase in share value and dividend payments.

What is a good market cap for a small-cap company? ›

Big-cap (large-cap) stocks have a market cap of $10 billion or more. Small-cap stocks generally have a market cap of $250 million to $2 billion. Small-cap stocks shouldn't be overlooked when putting together a diverse portfolio. Big-cap stocks don't always mean larger returns on investment.

What is considered a large market cap stock? ›

Large-cap stocks are shares of the largest U.S. companies, or those with market capitalizations of $10 billion or more. Large-caps are generally safer investments than their mid- and small-cap counterparts because the companies are more established, but their stocks may not offer the same potential for high returns.

Is a small market cap good or bad? ›

TIME Stamp: Small-cap stocks have both growth potential and higher risk. Small-cap stocks offer significant growth potential—something large-cap companies can't because their days of aggressive growth are generally behind them. However, the higher the potential reward, the higher the risk.


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