Market capitalization, or market cap, refers to the value of a
company and is a measure of company size. Market capitalization
is the value you get when you multiply all the outstanding
shares of a stock by the price of a single share. For example,
if a company has 10 million shares outstanding and its share
price is $5, the market cap is $50 million. The market cap is
generally listed on stock quotes you find on the internet.
Companies are grouped into market cap categories which are
references to how large a company is measured by its market
value. Here are the five basic market cap categories:
1) Micro cap (under $250 million): The smallest companies and
riskiest stocks available. Penny stocks fall in this category.
2) Small cap ($250 million to $1 billion): Stocks with higher
growth potential, but with higher risk. Typically includes new
or young companies.
3) Mid cap ($1 billion to $5 billion): Some of the safety of
large caps with some of the growth potential of small caps.
These companies have operated in the marketplace longer than
smaller companies and their stocks generally have less price
volatility.
4) Large cap ($5 billion to $250 billion): Stocks for the
conservative investor who wants steady appreciation with greater
safety. These stocks are referred to as "blue chips" and include
companies such as IBM.
5) Mega cap (over $250 billion): The largest companies that are
typically leaders in their industry. Examples include Wal-Mart
and Exxon.
There isn't universal agreement on the exact category cutoffs.
Many investors prefer the three cap system of small, mid, and
large, while others prefer to break it into more than the five
categories listed above.
Market cap classification allows you to gauge the growth versus
risk potential of a stock. Large caps experience slower growth
with lower risk while small caps provide higher growth
potential, but with higher risk. Market capitalization is
important to consider, but don't invest just because of it. You
can determine the value of a company in many ways, and market
cap is just one measure of value.
About the author:
You may freely reprint this article provided the following
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About The Author:
Craig Tesch is the founder of X-investing, a free guide to
investing and personal finance at
http://www.xinvesting.com
