Market Capitalization
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. It is used to classify companies as large-cap, mid-cap, or small-cap.
Market capitalization (market cap) is the simplest way to measure the size of a publicly traded company. It is calculated as: Share Price × Total Shares Outstanding. Market cap determines a company's weight in most stock indices and is a primary factor in portfolio construction.
Size Categories
- Large-cap — Over $10 billion. Companies like Apple and Microsoft. Generally more stable with lower growth rates.
- Mid-cap — $2 billion to $10 billion. Often offer a balance of growth potential and stability.
- Small-cap — Under $2 billion. Higher growth potential but also higher volatility and risk.
Market-cap weighting is the most common method used by index funds: larger companies receive proportionally more weight. This means a cap-weighted S&P 500 ETF will be heavily influenced by the largest companies. Some investors use factor-based strategies that deliberately tilt toward smaller or equal-weighted holdings to capture the historical small-cap premium.