In stock-market investing, what is a company’s market capitalization calculated by multiplying?
Answer
Share price by shares outstanding
A company’s market capitalization is calculated by multiplying its share price by its shares outstanding.
The result estimates the market value of the company’s outstanding equity. For example, a company with 10 million shares trading at $20 per share has a market capitalization of $200 million. The calculation uses equity value, not the value of all debt and other claims against the business.
Market capitalization is commonly used to group companies as large-cap, mid-cap, or small-cap, although the exact thresholds differ among markets and index providers. It is also a major factor in the construction of many stock indexes, where larger companies may receive greater weight.
Market capitalization is not the same as enterprise value. Enterprise value typically incorporates debt and other adjustments, while market capitalization focuses on the value of publicly held equity. A rising share price can increase market capitalization even when the number of shares remains unchanged.