Market capitalization, often abbreviated as market cap, is a measure of a public company’s overall value as set by the market. Market cap can be used to compare companies. It is also a tool to help diversify a portfolio of investments and manage risk and return.
The market cap of a given company is generally easy to find, though you can also calculate it yourself.
Calculating Market Cap
Calculating market cap is simple: Multiply the number of outstanding shares times the share price. So a company with 10 million shares trading at $50 is worth 10 million times 50, or $500 million.
Investors prefer market cap over other figures such as sales or assets for describing a company’s value. When Apple was declared the world’s first trillion-dollar public company in August 2018, market cap was the metric. Apple’s share price climbed to $207.39; that figure, multiplied by the 4,829,926,000 shares Apple had recently announced were outstanding, came to just over $1 trillion.
Apple, Microsoft and Amazon each have been named the world’s most valuable company at different times in recent years. As each cycles through the top spot, or when another company challenges the leaders, market cap will be the measure used to make the claim.
Finding Market Cap
There’s usually no need for an investor to calculate market cap. This is a standard valuation measure, which means that it will be included in the statistical profile of a public company by almost any market information service.
If the market cap is not already calculated, check the company’s balance sheet. Under shareholder’s equity will be a line item for common stock. This is the class of stock most investors buy. There may also be a line item for preferred stock. This is a special class of shares that often pays dividends.
Another line item may refer to treasury stock. These are shares the company has repurchased.
To get the number of total shares outstanding, add preferred and common shares. Then subtract treasury shares. Multiply the result times the share price to get market cap.
Source: Mark Henricks, SmartAsset, September 27, 2019: https://smartasset.com/investing/what-is-market-capitalization#q=market%20capi
Links to find market capitalizations:
Author: Danny Kaltenborn, Date: February 12, 2020