What Is Market Capitalization?

by David Dierking

1 min read

The total market value of all outstanding shares of your company’s stock equals your market capitalization. This figure gives people outside of your company a sense of what your company will be like in a few years. Businesses with a smaller market capitalization have the potential for more growth, but these companies are riskier because larger companies are more established in the market. If you were to sell your business, you would not want to use the market capitalization of your company because this does not actually reflect what you own and the value of your company. Instead, the enterprise value calculation is more effective. As your business grows, so does your market cap. Your market capitalization can be calculated by multiplying the number of shares of stocks issued and held by the market value of each share of stock. If your small business has issued 500 shares of stock that are trading at $20 each, your total market capitalization is $10,000. If your small business does not have any outstanding shares or all of your stock is private shares, your public market capitalization is equal to $0. There are a number of different capitalization types and sizes. The largest companies in the world are grouped as mega capitalization. Any business with less than $50 million of market capitalization is grouped as a nano capitalization company. It is important to understand that your market capitalization does not equal your equity. You can still have invested capital in your business, but without company stock, there are no shares on which to base your market capitalization.

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