Stock Market Term – What is market capitalization?

Market capitalization is a very frequently used stock market term by the investors. While doing the research on which type of stock to buy most investors choose the market cap of the company. You would have often heard terms like large cap, mid cap, small cap and micro cap companies. But, very often people don’t actually know what these terms mean and what really is the difference between a mid cap company and a small cap company. In this article, we would learn what market capitalization means and what the different categories of market capitalization are.

What is market capitalization?
Market capitalization is a fancy name given to a very simple term. Market capitalization is actually the value of the outstanding shares of the company. It is very simple to calculate. For example, we want to calculate the market capitalization of Microsoft Technologies (MSFT) we would take its current market price and multiply it with the number of its outstanding shares.

What is the significance of Market Capitalization?
Market capitalization tells you what stock price does not. Many people think that higher stock price means a bigger company but that is not true. A company with stock price of $100 having 5 billion outstanding shares is bigger than a company having stock price of $150 but having only 1 billion outstanding shares.

What are the different market capitalization types?
There are a few categories in which companies can be divided based on their market cap. These are listed below along with some examples.

1. Mega Cap Companies – There are very few companies which fit into this category since these companies have greater than $200 billion as market cap. Mostly only the industry leaders are present in this category. One example is Exxon Mobil (NYSE: XOM).

2. Large Cap Companies or Big Cap Companies – These companies have market cap between $10 billion to $200 billion. Most of the big and well known blue chip companies belong to this category. These companies are considered to be stable and are supposed to be secure investments. Some of these companies include Microsoft (Nasdaq: MSFT), IBM Corporation (YSE: IBM), General Electric (NYSE: GE), Wal-Mart (NYSE:WMT), Apple Inc (AAPL), Applied Materials Inc (AMAT), eBay Inc (EBAY), Abbott Laboratories (ABT), Baxter International Inc (BAX), Honeywell International Inc (HON), Hewlett-Packard Co (HPQ) and McGraw-Hill Companies Inc (MHP), Citigroup Inc (C), Bank of America Corp (BAC), Cisco Systems (CSCO), Wells Fargo & Co (WFC) JPMorgan Chase & Co. (JPM), Berkshire Hathaway Inc. (BRK.B) etc.

3. Mid Cap Companies – These companies have market cap between $2 billion to $10 billion. These companies are those which are considered growth companies and may well become a part of large cap companies soon. Some of the popular mid cap companies include ABM Industries Inc (ABM), Citrix Systems Inc (CTXS), DreamWorks Animation SKG Inc (DWA), Endo Pharmaceuticals Holdings Inc (ENDP), Garmin Ltd (GRMN), MSCI Inc (MXB), Red Hat Inc (RHT), Microchip Technology Inc (MCHP)

4. Small Cap Companies – These small cap companies have market cap of between $300 million to $2 billion. These are generally new companies which have a good appreciation possibility but they come with higher risk. Some of the examples of micro cap companies include Alliance Financial Corp (ALNC), Duncan Energy Partners LP (DEP), Patni Computer Systems Ltd (PTI), Unica Corp (UNCA), ATS Medical Inc (ATSI)

5. Micro Cap Companies – These are generally referred to as penny stocks and are highly volatile and risky. Mostly, institutional investors don’t invest in these micro-cap stocks since their market cap is only between $50 million to $300 million. Examples of micro cap companies are Oculus’ (OCLS), Raptor Networks Technology (RPTN), Neuralstem (CUR), CEVA (Nasdaq: CEVA), CE Franklin (AMEX: CFK), Matrixx Initiatives (Nasdaq: MTXX), Central Sun Mining (AMEX: SMC), Technology Research Corp (TRCI), Antares Pharma Inc (AIS), Alpha Pro Tech Ltd (APT)
Core Molding Technologies Inc (CMT), Copa Holdings SA (CPA), iGo Inc (IGOI), Inhibitex Inc (INHX), Image Sensing Systems Inc (ISNS), Lime Energy Co (LIME), New York Mortgage Trust Inc (NYNT), SoundBite Communications Inc (SDBT), Sepracor Inc. (SEPR),

6. Nano Cap Companies – Companies with less than $50 million come into this category. These are extremely risky stocks and are traded only on OTCBB or Pink Sheets. Some of the examples n this category include

Of course, the market cap category can change as well due to various reasons. For example, companies line Fannie Mae (FNM) and Freddie Mac (FRE) used to be much bigger companies which have recently lost their market cap.

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