Market capitalization is the total dollar value of all outstanding shares. This can be calculated by multiplying the number of total outstanding shares by share price value. For example, if there are 10,000 shares of a company A and those shares are worth $20 each, then the company’s market capitalization is $20, 000.
This practice is used most of the time to determine the size of a certain company. The bigger the company, the larger it’s market capitalization value is and the safer reinvestments tend to be.
Stocks can be classified into different categories in accordance to its market capitalization. Investors use this categories to predict future returns on investments. Although there is no set definition for these terms, here is a list of general guidelines to classify different types of stocks:
- Large-cap: over $4 billion
- Mid-cap: $400 million to $4 billion
- Small-cap: $100 million to $400 million
- Micro-cap: below $100 million