What is market capitalization?
Market capitalization is the current market price per share multiplied by shares outstanding. It is a market measure of equity value.
Calculation
1. Example Ten million shares priced at 20 units imply 200 million units of market cap. A simple split changes share count and price, not necessarily total value. 2. Share classes Different classes and share counts matter. Free-float capitalization differs from total equity capitalization. 3. Enterprise value Market cap measures equity. Enterprise value also considers debt and cash under its chosen definition. 4. Price sensitivity Applying the last trade price to every share is a convention, not proof every share can be sold there.
Interpretation and limits
5. Company size Market cap helps compare size but does not alone show profitability or risk. 6. Valuation Consider earnings, debt, cash flows and peers. Low market cap does not automatically mean cheap. 7. Dilution example New issuance increases shares outstanding and can dilute existing ownership. Consider how proceeds are used and earnings are shared.