Market capitalization, or just market cap, represents the total value of a company’s shares that are listed on the market. The term market cap is most commonly used to determine the size of a company.
The market cap is calculated by multiplying the current price per share by its total number of shares outstanding. For example, if a company has 10 million shares outstanding which it sells at £30 apiece, then its market cap would be £300 million.
Market cap is one of the key concepts of stock investing as it provides investors with insights into a company’s size by measuring its value on the open market. Furthermore, the market cap also helps investors understand a company’s future growth outlook as it essentially tells them what investors are willing to pay for its shares.
Based on their market cap, companies fall into three categories including large-cap, mid-cap, and small-cap companies.
While this categorization is not something set in stone, a common rule is that large-cap companies include those with a market cap of a minimum of £10 billion. These are well-established companies and usually leaders of their respective industries, as well as the most preferred investment choices among investors.
Mid-cap companies have a market capitalization of between £2 billion and £10 billion, which are also established within their respective sectors but usually have more growth leeway.
Finally, small-cap companies have a market value of less than £2 billion. These companies are not as widely known as large and mid-cap companies as they typically operate within emerging industries.
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