Market Capitalization: What It Is and Why It Matters

Market capitalization is an important measurement to understand when selecting socks and stocks funds.

Market capitalization, also known as market cap, is the total value of a company’s outstanding shares of stock. It is calculated by multiplying the number of shares a company has issued by its current share price. For example, a company with 100 million shares outstanding and a share price of $50 has a market cap of $5 billion.

Companies and their stocks are generally divided by size into three groups- large cap, mid cap, and small cap. The boundaries of each group vary depending on who is doing the categorizing, but roughly speaking:
• Large-cap companies have a market cap of $10 billion or more.
• Mid-cap companies have a market cap between $2 billion and $10 billion.
• Small-cap companies have a market cap between $300 million and $2 billion.

The three market-cap groups have different levels of risk and potentials for growth so knowing the market cap of a stock or stock fund is useful when choosing investments for a diversified portfolio. Generally speaking, large-cap stocks tend to have less risk than stocks issues by smaller companies. Small-cap stocks tend to have the most risk of the three groups, but small-cap companies generally offer greater potential for growth than larger companies.

Market capitalization is an important factor to consider when determining whether a stock or stock fund is a good fit for you. There are other factors to consider as well. Please seek advice from us regarding your specific situation.

With offices in Rutland and Williston, Vermont Copper Leaf Financial develops a customized wealth management plan designed to integrate every aspect of your financial life. Our approach is to conduct business in an orderly fashion, especially in a disorderly world. Where there is uncertainty we look for facts. We call our approach evidence-based investing. Call us today at 802.878.2731 to schedule a strategy session and begin building your road map to financial success.
Article published in April 2020 edition of Eye on Money. If you would like to be added to our mail list please email jennifer@dh-cpa.com.