Market capitalisation is the total value of a company’s outstanding stock. The answer to the question: “what does market cap mean?” is really that simple. It is important to know the meaning of market cap, because it is a concept that investors use to determine the size of a company.The reason that it is important is that a standard market cap formula will multiply the total number of shares by the current value of one share. This provides a more accurate gauge of a company’s value than either sales or total assets. Therefore, anyone who wants to buy stocks must be able to define market cap and understand a company’s true value before they invest.

Market Cap Explained in Context

The market capitalisation definition provided in the previous section is easy to understand. However, just for clarity, you can define market capitalisation as the total value of a company’s public shares. In context, this means that you need to know how many common shares are available and, in turn, what a single share is worth. Once you have these two pieces of information, you can perform a market cap calculation and say: “this company is worth $XX.”

Then, if we take this market cap meaning a step further, you can compare the value of one company to another. When you compare the market capitalisation of two companies, along with other metrics, such as EPS, share price and total sales, you can build a picture showing which one has more investment potential. This does not mean you can ignore things such as technical analysis.

However, if you add market cap comparisons into your analysis, you stand a better chance of finding a potentially profitable investment. With that being said, let’s move on to the next part of this market cap definition and look at how you determine a company’s value. Indeed, there is little value in answering that question: “what does market capitalisation mean?” if you are unable to apply the theory in practice.

Market Capitalisation Formula: How To Calculate Market Cap

It is useful to know the formula behind market capitalisation if you want to use it in practice. It is not essential because you can easily find the market cap data for all major companies online. However, to have a complete understanding of the meaning of market capitalisation, it is worth knowing the underlying mechanics of this concept.

So, what is the market capitalisation formula? The formula for calculating market cap is:

A Company’s Share Price X The Number of Outstanding Shares

Example: If Facebook has 50 million shares and the value of a single share is $100, that means its market cap value is $5 billion. If Facebook’s share price suddenly increased to $200, that would take its market capitalisation to $10 billion. Therefore, as you can see, it is worth being able to calculate market cap because it allows you to see the value of a company in context.

FAQ

What Is Market Capitalisation?

Market capitalisation is the total value of a company’s outstanding stock multiplied by the price of a single share. This value is used to determine the size of a company. You can use market capitalisation for a variety of markets, including stocks and cryptocurrencies.

What Is Market  Cap in Stocks?

Market capitalisation in stocks is when you assess a publicly listed company’s value by multiplying its total number of shares by its share price. This gives you an idea of how large or small a company is compared to others.