What does a stock’s market capitalization measure?
Answer
Total market value of its shares
A stock’s market capitalization measures the total market value of its outstanding shares. It is calculated by multiplying the current share price by the number of shares outstanding.
For example, a company with 100 million outstanding shares trading at $20 per share has a market capitalization of $2 billion. The calculation describes the value the market assigns to the company’s equity, not necessarily the cash that would be required to purchase every share at the displayed price. A large order could move the price as it was being executed.
Market capitalization is commonly used to group companies as large-cap, mid-cap, or small-cap, though the boundaries vary by market and provider. It also differs from enterprise value, which incorporates debt, cash, and other claims. Because share prices move continuously while shares outstanding can change through issuance or repurchases, market capitalization can change even when a company’s operations do not.