Loading the player...

What is a 'Mid-Cap'

A mid-cap is a company with a market capitalization between $2 billion and $10 billion. As the name implies, a mid-cap company falls in the middle of the pack between large-cap (or big-cap) and small-cap companies. Classifications such as large-cap, mid-cap and small-cap are only approximations and may change over time.

BREAKING DOWN 'Mid-Cap'

Many mid-caps are expected to grow and increase profits, market share and productivity, which puts them in the middle of their growth curve. Since they are still considered to be in a growth stage, they are deemed to be less risky than small-caps, but more risky than large-caps. But because share prices fluctuate and mid-caps continue to grow, the market capitalization is likely to change. 

Mid-caps can be invested in directly through a company's stock or by buying mid-cap mutual funds — an investment vehicle that focuses on mid-cap companies. 

There are two main ways a company can raise capital when needed: through debt or equity. Debt must be paid back but can generally be borrowed at a lower rate than equity due to tax advantages. Equity may cost more, but it does not need to be paid back in times of crisis. As a result, companies strive to strike a balance between debt and equity. This balance is referred to as a firm's capital structure. Capital structure, especially equity capital structure, can tell investors a lot about the growth prospects for a company.

Market Capitalization

One way to gain insight about a company's capital structure and market depth is by calculating its market capitalization. Companies with low market capitalization, or small-caps, have $2 billion or less in market capitalization. Large-capitalization firms have over $10 billion in market capitalization, and mid-cap firms fall in between, ranging from $2 billion to $10 billion in market capitalization.

While market capitalization, or market cap, depends on market price, a company with a stock priced above $10 is not necessarily a mid-cap stock. To calculate market capitalization, analysts multiply the current market price by the current number of shares outstanding. For example, if company A has 10 billion shares outstanding at a price of $1, it has a market capitalization of $10 billion. Company B has 1 billion shares outstanding at a price of $5, so company B has a market capitalization of $5 billion. Even though company A has a lower stock price, it has a higher market capitalization than company B. Company B may have the higher stock price, but it has one-tenth of the shares outstanding.

The Benefits of Mid-Caps

Most financial advisors suggest that the key to minimizing risk is a well-diversified portfolio; investors should have a mix of low-, mid- and large-cap stocks. However, some investors see mid-cap stocks as a way to diversify risk as well. Small-cap stocks offer the most growth potential, but that growth comes with the most risk. Large-cap stocks offer the most stability, but they offer lower growth prospects. Mid-cap stocks represent a hybrid of the two, providing a balance of growth and stability.

What Makes Mid-Caps So Attractive?

No one can tell when the market will favor a specific kind of company, whether it’s a large-, mid- or small-cap. So it’s important to diversify your portfolio, as we mentioned above. But the percentage of mid-caps that you’ll want to invest in depends on your specific goals and risk tolerance. Whatever those may be, there are some reasons why you may want to consider mid-caps as an investment. First, when interest rates are low and capital is cheap, corporate growth is stable. Secondly, mid-cap companies can get credit they need in order to grow, and they do well during the expansion part of the business cycle. Mid-caps are not as risky as small-cap companies, which means they tend to do well financially during times of economic turbulence. Many mid-caps are well known, are often focused on one specific business and have been around long enough to make a niche in their target market. And finally, because they are riskier than large caps, they may have a higher return, which means more for your bottom line. 

RELATED TERMS
  1. S&P MidCap 400 Index

    The S&P MidCap 400 is a subset of the S&P 500 and serves as a ...
  2. Market Capitalization

    Market Capitalization is the total dollar market value of all ...
  3. Russell Midcap Index

    The Russell Midcap Index is a market capitalization weighted ...
  4. Small Cap

    Refers to stocks with a relatively small market capitalization. ...
  5. Market Value Of Equity

    Market value of equity is the total dollar value of a company's ...
  6. Capitalization Change

    Capitalization change refers to a modification of a company's ...
Related Articles
  1. Investing

    Finding the Right Size With Mid-Cap ETFs

    The way that a mid-cap ETF weights its components is pivotal for investors' long-term returns.
  2. Investing

    The Top 5 Mid-Cap Value Mutual Funds for 2016

    Understand how mid-cap value stocks play a role in strategic asset allocation, and learn the best mid-cap value mutual funds to consider for 2016.
  3. Investing

    IJH: iShares Core S&P Mid-Cap ETF

    Learn more about the iShares Core S&P Mid-Cap ETF, and understand how savvy investors might incorporate this ETF into their portfolio.
  4. Investing

    A Mid-Cap ETF That Deserves a Second Look

    Mid-caps win over in the long-term and investors can grab some income along the way with this ETF.
  5. Investing

    3 Mid-Cap Value ETFs for Bull and Bear Markets (XMLV, DON)

    These three ETFs have outperformed the S&P 500 Index during up and down markets, and should continue to do so based on their statistics and characteristics.
  6. Investing

    The Top 5 Mid Cap Core ETFs for 2016 (VO, IJH)

    Read about some of the top mid-cap ETFs, and learn how you can use these funds to get broad exposure to an important segment of the equities market.
  7. Investing

    Big Activity in Mid-Cap ETFs

    Some investors are eagerly betting on mid-cap ETFs.
  8. Investing

    4 Mid-Cap Core ETFs for Bull & Bear Markets (DON, IJH)

    Learn about how U.S. mid-cap stocks have performed thus far in 2016 and four mid-cap ETFs to consider for gains during bull or bear markets.
  9. Investing

    The Top 5 Mid-Cap Growth ETFs for 2016 (VOT, IWP)

    Discover five of the top mid-cap growth ETFs available, and learn how to get exposure to growth-oriented companies across the economy.
  10. Investing

    Top 3 Mid Cap Mutual Funds

    Understand how investing in mid-cap mutual funds benefits overall asset allocation, and learn the best mid-cap mutual funds for the upcoming year
RELATED FAQS
  1. Is there an index for tracking mid-cap stocks?

    Learn the specifics about indexes available for tracking companies with market capitalizations in the medium-sized, small ... Read Answer >>
  2. How do interest rates influence a corporation's capital structure?

    Learn about how changing interest rates can affect a corporation's capital structure because of their impact on the cost ... Read Answer >>
  3. How does a company's capitalization structure affect its profitability?

    Learn about capitalization structure and how the combination of debt and equity a company uses to fund operations can affect ... Read Answer >>
Hot Definitions
  1. Diversification

    Diversification is the strategy of investing in a variety of securities in order to lower the risk involved with putting ...
  2. Intrinsic Value

    Intrinsic value is the perceived or calculated value of a company, including tangible and intangible factors, and may differ ...
  3. Current Assets

    Current assets is a balance sheet item that represents the value of all assets that can reasonably expected to be converted ...
  4. Volatility

    Volatility measures how much the price of a security, derivative, or index fluctuates.
  5. Money Market

    The money market is a segment of the financial market in which financial instruments with high liquidity and very short maturities ...
  6. Cost of Debt

    Cost of debt is the effective rate that a company pays on its current debt as part of its capital structure.
Trading Center