Market Capitalization
Definition
The total market value of a company's outstanding shares of stock, calculated by multiplying the current share price by the total number of shares outstanding.
Market capitalization (market cap) is the simplest way to measure a company's size. The formula is: Market Cap = Share Price x Total Shares Outstanding. A company with 1 billion shares trading at $150 has a market cap of $150 billion.
Companies are typically categorized by market cap: mega-cap ($200B+), large-cap ($10B-$200B), mid-cap ($2B-$10B), small-cap ($300M-$2B), and micro-cap (under $300M). These categories matter because they correlate with risk, volatility, and expected returns.
Historically, small-cap stocks have delivered higher average returns than large-caps (the "small-cap premium"), but with significantly more volatility and risk. Mid-caps offer a middle ground — more growth potential than large-caps with less risk than small-caps.
Important: market cap measures what the market believes a company is worth, not what it actually earns or owns. A company can have a $1 trillion market cap with modest profits (like many tech companies during growth phases) if investors expect massive future earnings.
For crypto, market cap works similarly: token price multiplied by circulating supply. However, crypto market caps can be misleading due to low-liquidity tokens and tokens locked in smart contracts.
Where this appears in Clarity
Clarity automatically tracks and calculates these concepts across your connected accounts.
Related Terms
Frequently Asked Questions
Why does market cap matter more than stock price?
Stock price alone is meaningless without context. A $500 stock with 100 million shares ($50B market cap) is a much larger company than a $5 stock with 500 million shares ($2.5B market cap). Market cap tells you the total value; stock price is just one input.
Can a company's market cap exceed its revenue?
Absolutely — and many do. High-growth tech companies often have market caps at 10-50x revenue because investors price in expected future growth. The price-to-sales ratio measures this relationship and varies dramatically by industry.