• September 2019
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Market Capitalization (or Cap)

The total market value of a corporation’s outstanding shares. Also commonly referenced as a “market cap.”

Market capitalization is calculated by multiplying the total number of a company’s outstanding shares by the current market price of a single share. Just as the size of a company can be calculated using its sales figures or its total assets, so can it be determined by the scope of its market capitalization. Given that a diversified portfolio usually contains securities from companies of different sizes, understanding this straightforward calculation can help investors research some fundamentals about companies they may be interested in investing in.

 

EXAMPLE:

Accountant: (Sighs) “One more time.”

Executive: “Okay. I take the current market price of one of our shares.”

Accountant: “Yes.”

Executive: “And I multiply that number by the number of our outstanding shares.”

Accountant: “Yes.”

Executive: “That’s it? Why does market capitalization have such an intimidating name? Why isn’t it called ‘relatively straightforward multiplication helps to determine a company’s size’?”

Accountant: “That’s a pretty long title for a concept.”

Executive: (Kicks desk) “…Math is stupid.”