Definition
Market capitalization ('market cap') is the market's collective valuation of a publicly-traded company's equity. It changes continuously with the stock price. Companies are commonly grouped by market cap: mega-cap ($200B+), large-cap ($10B–$200B), mid-cap ($2B–$10B), small-cap ($300M–$2B), and micro-cap (under $300M). Market cap has important implications for volatility, liquidity, and index inclusion — most major indices (S&P 500, Russell 1000) weight constituents by market cap, meaning larger companies exert disproportionate influence on index returns. Market cap is different from enterprise value, which also incorporates debt and subtracts cash.
Market Cap = Share Price × Total Shares Outstanding
Example
Apple trades at $200 with roughly 15.2 billion shares outstanding. Market cap = 200 × 15.2B = $3.04 trillion. This places Apple at the top of the mega-cap category.
Frequently Asked Questions
What's the difference between market cap and enterprise value?
Market cap only measures equity value. Enterprise value adds debt and subtracts cash, giving a fuller picture of what an acquirer would pay to take the company private.
Why do most indices use market-cap weighting?
Because it naturally reflects the market's aggregate opinion of each company's value and produces a portfolio that mirrors overall investor exposure. Critics argue it over-concentrates in overvalued names.
Can market cap change without the stock price changing?
Yes — through share issuance (dilution) or buybacks. A large buyback shrinks share count and, if the price is unchanged, market cap falls.