What is Market Capitalization?

Robinhood Learn
Democratize Finance For All. Our writers’ work has appeared in The Wall Street Journal, Forbes, the Chicago Tribune, Quartz, the San Francisco Chronicle, and more.
Definition:

Market capitalization (aka “market cap”) is one way to measure the size of a company by multiplying its total number of shares by its stock price.

Main article image
Main article image

🤔 Understanding market capitalization

Market capitalization shows the dollar value of a company’s outstanding shares. To get this number, you multiply the company’s total number of shares by the price of each share. As the price of the stock changes (or the number of shares outstanding changes), so will the company’s market cap. Companies can be sorted into three market cap categories: “small cap” ( $300M–$2B), “mid cap” ($2B–$10B), and “large cap” ($10B+).

Example

Apple became the first company in history to reach a $1 trillion market cap on August 2, 2018. Doing the math: Its nearly 5 billion shares * the $207.05 share price it hit that day = $1 trillion. Since then, Amazon and Microsoft have also joined the “four comma club.”

Takeaway

Calculating market cap is like calculating the value of fruit on a pallet...

To quickly compute the value of the fruit, you would multiply the number of oranges by their price. For instance, 300 oranges * $2 = $600. Keep in mind, the number of oranges (and their price) could change.

Ready to start investing?
Sign up for Robinhood and get stock on us.Certain limitations apply

New customers need to sign up, get approved, and link their bank account. The cash value of the stock rewards may not be withdrawn for 30 days after the reward is claimed. Stock rewards not claimed within 60 days may expire. See full terms and conditions at rbnhd.co/freestock. Securities trading is offered through Robinhood Financial LLC.

Tell me more…

How is market cap calculated?

You only need two numbers to calculate a company’s market cap: the total number of outstanding shares of a company — including those held by officers and insiders, as well as people like us who own shares — and the real-time price of that stock. Because the share price of private companies isn’t publicly known, market cap is typically used in reference to publicly traded stocks. The simplicity of the market cap formula makes it a convenient way to quickly judge the size of different companies. But there are also more nuanced ways to value a company.

Here are the three main categories of market cap to keep in mind (as of Jun 6, 2019):

Small cap: Between $300 million and $2 billion

Mid cap: Between $2 billion and $10 billion

Large cap: $10 billion+

While small, mid, and large are the most traditional categories, labels have been made for the extremes as well:

Micro cap: Between $50 million and $300 million

Mega cap: Greater than $300 billion

Generally speaking, these ranges tend to drift higher over time as asset prices increase.

What is the difference between market cap and market value?

Want to know how much a company can be sold for? That’s its market value — the value that the company is worth in the market.

For public companies, one way to estimate its value is by calculating its market cap.

For private companies it’s a more nuanced (and subjective) calculation. Since private companies don’t have publicly-traded shares, it’s not entirely clear how much shares would be worth.

Even for public companies, it can be a challenge to estimate market value (i.e. what another buyer would actually pay for it). While market cap is one way to estimate, there are many other methods used. Some include pretty intense accounting, taking into consideration a company’s debts, growth prospects, taxes, and more. These estimates sometimes incorporate more fuzzy analysis, too — for instance, a company’s ability to innovate and broader trends in the relevant industry. Some approaches are more formula driven and use mathematical equations to estimate value. For example, multiples let you take one known metric of a company and turn it into an estimated market value.

Why do market caps matter?

Market cap can be helpful to investors for two main reasons:

  1. Market cap is a quick way to get a possible feel for the size of a company and its maturity.
  2. Market cap might be able to give you insight into the riskiness of an investment. Companies with smaller market caps may be less mature businesses, while large cap companies may have a more established market position.

Why stock splits don’t affect market cap

A stock split occurs when a company wants to decrease the price of its stock — So, the company splits its shares into multiple, smaller ones. (It’s like cutting a pizza into 8 slices vs. 4 — the size of the pizza hasn’t actually changed.)

Ready to start investing?
Sign up for Robinhood and get stock on us.Certain limitations apply

New customers need to sign up, get approved, and link their bank account. The cash value of the stock rewards may not be withdrawn for 30 days after the reward is claimed. Stock rewards not claimed within 60 days may expire. See full terms and conditions at rbnhd.co/freestock. Securities trading is offered through Robinhood Financial LLC.

2603072

Related Articles

You May Also Like

PARTICIPATION IS POWER™

This information is educational, and is not an offer to sell or a solicitation of an offer to buy any security. This information is not a recommendation to buy, hold, or sell an investment or financial product, or take any action. This information is neither individualized nor a research report, and must not serve as the basis for any investment decision. All investments involve risk, including the possible loss of capital. Past performance does not guarantee future results or returns. Before making decisions with legal, tax, or accounting effects, you should consult appropriate professionals. Information is from sources deemed reliable on the date of publication, but Robinhood does not guarantee its accuracy.

Options trading entails significant risk and is not appropriate for all customers. Customers must read and understand the Characteristics and Risks of Standardized Options before engaging in any options trading strategies. Options transactions are often complex and may involve the potential of losing the entire investment in a relatively short period of time. Certain complex options strategies carry additional risk, including the potential for losses that may exceed the original investment amount.

Commission-free trading of stocks, ETFs and options refers to $0 commissions for Robinhood Financial self-directed individual cash or margin brokerage accounts that trade U.S. listed securities and certain OTC securities electronically. Keep in mind, other fees such as trading (non-commission) fees, Gold subscription fees, wire transfer fees, and paper statement fees may apply to your brokerage account. Check out Robinhood Financial’s Fee Schedule for details.

Brokerage services are offered through Robinhood Financial LLC, (RHF) a registered broker dealer (member SIPC) and clearing services through Robinhood Securities, LLC, (RHS) a registered broker dealer (member SIPC). Cryptocurrency services are offered through Robinhood Crypto, LLC (RHC) (NMLS ID: 1702840). Robinhood Crypto is licensed to engage in virtual currency business activity by the New York State Department of Financial Services. The Robinhood spending account is offered through Robinhood Money, LLC (RHY) (NMLS ID: 1990968), a licensed money transmitter. A list of our licenses has more information. The Robinhood Cash Card is a prepaid card issued by Sutton Bank, Member FDIC, pursuant to a license from Mastercard®. Mastercard and the circles design are registered trademarks of Mastercard International Incorporated. RHF, RHY, RHC and RHS are affiliated entities and wholly owned subsidiaries of Robinhood Markets, Inc. RHF, RHY, RHC and RHS are not banks. Products offered by RHF are not FDIC insured and involve risk, including possible loss of principal. RHC is not a member of FINRA and accounts are not FDIC insured or protected by SIPC. RHY is not a member of FINRA, and products are not subject to SIPC protection, but funds held in the Robinhood spending account and Robinhood Cash Card account may be eligible for FDIC pass-through insurance (review the Robinhood Cash Card Agreement and the Robinhood Spending Account Agreement).

2784249

© 2024 Robinhood. All rights reserved.
Follow us on

This information is educational, and is not an offer to sell or a solicitation of an offer to buy any security. This information is not a recommendation to buy, hold, or sell an investment or financial product, or take any action. This information is neither individualized nor a research report, and must not serve as the basis for any investment decision. All investments involve risk, including the possible loss of capital. Past performance does not guarantee future results or returns. Before making decisions with legal, tax, or accounting effects, you should consult appropriate professionals. Information is from sources deemed reliable on the date of publication, but Robinhood does not guarantee its accuracy.

Options trading entails significant risk and is not appropriate for all customers. Customers must read and understand the Characteristics and Risks of Standardized Options before engaging in any options trading strategies. Options transactions are often complex and may involve the potential of losing the entire investment in a relatively short period of time. Certain complex options strategies carry additional risk, including the potential for losses that may exceed the original investment amount.

Commission-free trading of stocks, ETFs and options refers to $0 commissions for Robinhood Financial self-directed individual cash or margin brokerage accounts that trade U.S. listed securities and certain OTC securities electronically. Keep in mind, other fees such as trading (non-commission) fees, Gold subscription fees, wire transfer fees, and paper statement fees may apply to your brokerage account. Check out Robinhood Financial’s Fee Schedule for details.

Brokerage services are offered through Robinhood Financial LLC, (RHF) a registered broker dealer (member SIPC) and clearing services through Robinhood Securities, LLC, (RHS) a registered broker dealer (member SIPC). Cryptocurrency services are offered through Robinhood Crypto, LLC (RHC) (NMLS ID: 1702840). Robinhood Crypto is licensed to engage in virtual currency business activity by the New York State Department of Financial Services. The Robinhood spending account is offered through Robinhood Money, LLC (RHY) (NMLS ID: 1990968), a licensed money transmitter. A list of our licenses has more information. The Robinhood Cash Card is a prepaid card issued by Sutton Bank, Member FDIC, pursuant to a license from Mastercard®. Mastercard and the circles design are registered trademarks of Mastercard International Incorporated. RHF, RHY, RHC and RHS are affiliated entities and wholly owned subsidiaries of Robinhood Markets, Inc. RHF, RHY, RHC and RHS are not banks. Products offered by RHF are not FDIC insured and involve risk, including possible loss of principal. RHC is not a member of FINRA and accounts are not FDIC insured or protected by SIPC. RHY is not a member of FINRA, and products are not subject to SIPC protection, but funds held in the Robinhood spending account and Robinhood Cash Card account may be eligible for FDIC pass-through insurance (review the Robinhood Cash Card Agreement and the Robinhood Spending Account Agreement).

2784249

© 2024 Robinhood. All rights reserved.