What is Market Cap?

 


Market capitalization, commonly referred to as market cap, is a financial metric that represents the total market value of a company's outstanding shares of stock. It is a crucial indicator used by investors to determine the size of a company.

Definition

Market Cap = Current Share Price × Total Number of Outstanding Shares

Explanation

  1. Current Share Price: This is the price at which a company's shares are currently trading on the stock market.
  2. Total Number of Outstanding Shares: This is the total number of shares that have been issued by the company and are currently held by shareholders, including institutional investors and company insiders.

Purpose

Market cap is used to gauge the company's size, which can provide insight into its stability, potential growth, and risk profile. It helps investors diversify their portfolios by allocating investments across companies of different sizes.

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