What is market capitalization and why is it important?

What is market capitalization and why is it important?

Market capitalization, or market cap, is the total value of a company's outstanding shares of stock. It's important because it helps investors assess a company's size, stability, and growth potential.

How is market capitalization calculated?

Market capitalization is calculated by multiplying the current share price by the total number of outstanding shares. For example, if a company has 1 million shares priced at $50 each, its market cap would be $50 million.

What are the different categories of market capitalization?

Market capitalization is typically categorized into three groups: large-cap (over $10 billion), mid-cap ($2 billion to $10 billion), and small-cap (under $2 billion). Each category has different risk and growth profiles.

How does market cap affect investment decisions?

Investors often use market cap to gauge risk. Large-cap stocks are generally considered safer, while small-cap stocks may offer higher growth potential but come with increased risk.