What does 'Large Cap - Big Cap' mean
Large cap (sometimes "big cap") refers to a company with a market capitalization value of more than $5 billion. Large cap is a shortened version of the term "large market capitalization." Market capitalization is calculated by multiplying the number of a company's shares outstanding by its stock price per share. The dollar amounts used for the classifications "large cap," mid cap" or "small cap" are only approximations that change over time.
BREAKING DOWN 'Large Cap - Big Cap'
Investors like to diversify their portfolios by investing in companies in different industries and at varying levels of assets, revenue and market size. A company's share price tells you little about how big it is. A company with a market price of $100 can be much smaller than a company with a market price of $10 depending on the number of shares it has outstanding in the market.
Market capitalization describes the market size of a company. While market capitalization provides no information about the size of the company in terms of assets or revenue, it does provide information about the company's market depth.
Market Capitalization Calculation
Market capitalization is calculated by multiplying the number of shares outstanding by the share price of the company's stock. The number of shares outstanding is reported on a quarterly basis, but the price of the stock can change from minute to minute. The value of market capitalization is as fluid as the market price. For example, a company with 10 billion shares outstanding trading at a price of $10 per share has a market capitalization of $100 billion. Likewise, a company with 100 billion shares outstanding, and trading at a price of $1, also has a market capitalization of $100 billion.
Market Capitalization Categories
In general, stocks are lumped into three categories of capitalization: large cap, mid cap and small cap. A large-cap company has a market capitalization over $5 billion. A mid-cap company has a market capitalization between $1 billion and $5 billion, and a small-cap company has less than $1 billion in market capitalization. In general, small caps also have lower trading liquidity, less access to the capital markets and less experience, and there's less information available about small caps than large caps.
Due to their size, large-cap stocks are generally believed to be safer, but they may not offer the same opportunities for growth as small-cap and mid-cap stocks. Financial advisors suggest diversifying an investment portfolio by including small-cap, mid-cap and large-cap stocks, especially for investors with long-term investment horizons.