What Does Market Capitalization Mean?

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In the investment world of stocks, bonds, bulls and bears, there are many terms that you may have heard about but are not familiar with. One of those terms is market capitalization. Knowing what it is all about can help you to make intelligent decisions about your investments.

Companies are classified in many ways. These classifications are used to help determine how much a company is worth. Market capitalization (or market cap for short) is one way of doing that. It is a measure of value that takes into account the total number of outstanding shares that a company has, multiplied by the current price of the stock.

Most people would normally think that a large wealthy company has more value, but that may not be true according the concept of market capitalization. Some smaller companies that are stable may have a larger market capitalization. When you are looking to invest, market capitalization is important.

Within market capitalization there are also other terms that you’ll want to become familiar with. They are mega, large, mid, small and micro cap. According to the definition of market capitalization, a company that falls into the mega cap category has a market share in the neighborhood of $200 billion. That is a lot of money.

The next on the rung is the large cap companies. Their market capitalization is between $10 billion and $200 billion. These companies have names that you’ve heard of before and are also publicly traded companies. If you are looking for a secure investment, you can choose large cap stocks and feel safe in your decision. Some investors refer to large cap stocks as blue chips.

Next we come to the mid or medium cap companies. The market capitalization here is between $2 billion and $10 billion. Stocks in this range are prone to fluctuations. These are companies looking to make a name for themselves, a household brand, if they haven’t done so yet.

What about the small cap? These are newer companies just bursting on the scene. Their market capitalization is between $300 million and $2 billion. It can be risky investing a large amount of money in these stocks. Young upstarts like this can bring you the money, however, if you are willing to assume the risk.

Micro caps are not an item found in a brewery; they are companies that rate low on the totem pole as far as their worth is concerned. Their market capitalization is only between $50 million and $300 million. If you want to invest in a sure thing, these stocks are not it.

Who knew that you could wear so many caps? When looking at mutual funds and other investment vehicles you will now know what market capitalization is, and wisely choose the right mix of investments for you.

Filed Under Things You Need To Know 

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