# Market Capitalization

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Market capitalization is one of the best measures of a company's size. Also known as market cap, market capitalization is the total market value of a company's outstanding shares of stock. For example, you may have heardApple referred to as "the most valuable company in the world." That's because Apple currently has the highest market cap of any publicly traded company.

Let's go over how to calculate this metric and what it means for investors.

Calculating market capitalization
To calculate market capitalization, simply take the total number of a company's shares outstanding and multiply that figure by the stock's market price. If a company has 2 million shares outstanding and each share is worth \$20, then its market capitalization is \$40 million.

A company can issue new shares of stock to increase its market capitalization. Note that a stock split won't affect a company's market capitalization, even though it will increase the total shares outstanding. The reason is that when stocks are split, their individual prices are split by the same proportion. If a company has 30 million shares outstanding worth \$10 each, after a 2-for-1 split, it will have 60 million shares outstanding worth \$5 each. Either way, the product of that company's shares outstanding multiplied by its stock price will be the same, and so its market cap will not change.

Tiers of market capitalization
There is no universally agreed-upon way of categorizing companies based on their market cap, but they are often categorized as follows:

• Mega-cap companies have a market cap in excess of \$200 billion
• Large-cap companies have a market cap of \$10 billion to \$200 billion
• Mid-cap companies have a market cap of \$2 billion to \$10 billion
• Small-cap companies have a market cap of \$300 million to \$2 billion
• Micro-cap companies have a market cap of \$50 million to \$300 million