Market capitalization (also known as market cap) makes reference to the whole dollar market value belonging to every company´s shares. This value has to be calculated from the multiplication of two very important factors: shares outstanding and their current market price. Many investors use this value with the purpose of determining a company´s size, instead of using sales. It is absolutely relevant to mention that market cap helps investors to determine a company´s size and many other economic characteristics.
Apart from this, there are many other characteristics investors should know, such as risk. Thus value is usually simple to determine. For instance, if any company has 20 million shares and each share is sold for $100, its market capitalization is approximately $2 billion. As you can see, it is extremely simple to calculate the market capitalization of a company. However, there are many other things you should know about it.
Market Capitalization Ranking
The dollar market value of a company is completely effective and simple for any kind of risk. For this reason, it may be very useful to determine what the best options are for stocking and how you can make your personal portfolio more diverse with many types of companies. In consequence, it is very important for you to know that companies with large share capital commonly hold a market cap of more than $10 billion. At the same time, they normally are very old companies and very large corporations since long before now.
In you want to invest in this kind of companies; you have to be very clear that this not necessarily imply enormous revenues in a short space of time. However, if you wait the necessary length of time in order to earn the expected income, you will be rewarded with an incredible increase in value and revenues. In the case of mid-cap companies, they usually have a market cap of less than $10 billion. If you want more information about it, their market cap is normally between $2 billion and $10 billion.
The aforementioned companies are frequently established companies that have been operating in any industry. In most cases, they have been waiting for growth for many years. However, some other mid-cap companies are still trying to expand their power in a specific industry. Of course, it is very risky to invest in this type of companies due to their instability. Despite this, they continue to be attractive for many investors because of their incredible potential. Eagle Materials Inc. is a good example mid-cap company.
On the other side, there are many companies that have a market cap of less than $2 billion. Very often, their market cap is between $3 million and $2 billion. Apart from this, they can be known as small-cap companies due to their low whole dollar market. This kind of companies is not very old and serves new industries. For many investors, it is very risky to invest in them because of their age and their size. In addition to this, they normally have no many resources and are highly sensitive to changing market conditions.
Why the market cap is the true measure of companies´ value?
For many people, per-share price is more important than the market cap, but it is not true. Even many investors think per-share is their key consideration when they evaluate a stuck, but they are completely wrong. Many respected members of the investment community think that the per-share price has the ability to convey some sense of value linked to many stocks, but the fact is that it is completely meaningless for investing.
Apart from this, it does not reveal relevant information such as the whole value of a company. It just provides us with some unimportant numbers and calculations about the company, but that is all.