Introduction to Market Capitalization

Market Capitalization Market capitalization is a measurement of a business’ size: it is equal to the share price multiplied by the number of shares outstanding of a public company. It shows the public consensus on the value of a company’s equity. Market cap is for the most part independent of a company’s history: it is a market estimate of the company’s value, derived from perceived future prospects, economic and monetary conditions.

When a mutual fund is described in terms of market cap, it indicates the size of the companies in which the fund invests, not the size of the fund itself. Small-cap funds usually include companies with market capitalization of less than $1 billion. Mid-cap funds are those that invest in companies with market caps of $1-$10 billion, and are the most popular choice among the general investing public. Large cap funds include companies with market caps of $10 billion or more.

The categorization of companies into different caps allows investors to measure the growth versus risk potential. Large caps historically experience slower growth with lower risk, while small caps have higher growth potential with higher risk. The ranges are not set in stone, and they are known to vary depending on how the market as a whole is performing.