What Is Market Cap? Defined and Explained

What Is Market Cap and Why Does It Matter?

By Jason Hall – Updated Nov 7, 2024 at 2:20 PM

Key Points

Market cap calculates a company's value by multiplying share price with shares outstanding.
Large-cap stocks are stable with dividends; small-cap stocks offer growth with higher risks.
Diversifying investments across different market caps can balance risk and return goals.

Shorthand for "market capitalization," market cap is one way an investor can evaluate how much a company is worth. Market cap refers to the total value of a publicly traded company's shares.

To determine a company's market cap, simply multiply the share price by the number of shares outstanding.

Loading paragraph...

Infographic defining different types of stocks based on market cap — Image source: The Motley Fool

Loading image...

Loading paragraph...

Chart by author.

Loading table...

Loading paragraph...

Best Stock Brokers for ##MONTH## ##YEAR##

Loading callout...

Loading paragraph...

Dividends Per Share

The dividends a company pays out per share and a commonly used per-share metric.

Loading paragraph...

Related investing topics

Loading paragraph...

How to Calculate Your Gross Income Per Month

Calculate your monthly inflow before taxes using this metric.

What Are the 11 Stock Market Sectors?

The larger stock market is made up of multiple sectors you may want to invest in.

Can You Buy a Stock and Sell It in the Same Day?

Same-day stock trading can subject you to a higher level of regulatory scrutiny -- and financial risk.

Should I Buy Stock Now or Wait?

More money has been lost waiting to buy stocks than in holding stocks through downturns.

Loading hub_pages...

Conversely, companies -- often small caps that need the cash -- may sell stock to fund growth, pay debt, or just keep the lights on. When this happens, it reduces -- dilutes -- how much of the company each share is worth. For example, if a company with 10 million shares issues and sells 1 million new shares, 10% of your former equity now belongs to the new shareholders. The key here is to consider a company's history of share buybacks and dilution.

Most investors find that having a diversified portfolio that includes stocks of various market caps is best. It lets you tailor for the desired return and risk levels that meet your goals. If you want your portfolio to be more stable, you'll want a bigger allocation of large-cap stocks. If your primary goal is to increase your portfolio's size as much possible over many years, you'll likely want to own more small- and mid-cap stocks.

Loading paragraph...

About the Author

Jason Hall is a contributing Motley Fool stock market analyst with more than a decade of experience writing about dividend stocks and long-term investing. He has been with the company since 2012 and previously spent over 10 years in technical sales in the printing and information services industry. Jason also founded and operated a small food manufacturing business.

TMFVelvetHammer

@thesmattering

Jason Hall has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Costco Wholesale. The Motley Fool has a disclosure policy.