Market capitalization refers to the total dollar market value of a company's outstanding shares. Colloquially called "market cap," it is calculated by multiplying the total number of a company's shares by the current market price of one share. The investment community uses this figure to determine a company's size, and basically how the stock market is valuing the company.

Popular valuation ratios that take market capitalization include:

There is no official barrier for different categories of stocks based on size, but large caps are often companies with market caps over $10 billion, while mid caps are $2 billion to $10 billion, and small caps are under $2 billion.

Market capitalization is used to set investor expectations and shape investment strategy. Different types of investment strategies focus on the various market cap groups, and different valuation methods are applied depending on company size. Very large market caps are usually associated with mature, low-growth companies that pay dividends. Small caps are often growth companies with higher-risk profiles and generally do not pay dividends.


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