What is Market Capitilazation? – Investment Tips


Market Capitalization (also known as market
cap) is simply the total currency value of all the company’s stocks outstanding. It
is calculated by multiplying the number of total Stocks outstanding by the current price
of the traded stock right now. Market Capitalization is used as an indicator
of the size of a company and risks associated with it. All companies start as an Idea, at which point
their market cap is zero. As Ideas turn into actions and some profits or investors’ trust
are gained, share price begins to rise. A great company, led by a great manager will
compound its value many times over during many years of progress, taking its shareholders
on a wealth-generating journey with it. At the lowest spectrum, companies – private
or public, have a very low Market Cap, usually lower than 50 million. This is where all companies
start. These are called Nano Cap’s and sometimes Penny stocks. These kinds of companies are traded (when
public) on special platforms with very little supervision and regulation – if any. They are Not liquid because of a lack of ready
and willing investors to purchase them and are not covered by the financial media. While the vast majority of these are usually
questionable companies at best, fine screening of the Nano Cap sector by a
knowledgeable and patient investor can on occasion reveal some highly attractive, profitable,
growing companies ignored by the typical investor crowd. These companies are usually extremely high-risk,
high-reward investments and their stocks can move in double digits daily without notice. Beyond the 50 million Market Cap, exists the
Micro Cap segment. Micro Caps are still very small companies, and they may choose to remain
private in some cases. Within Wall Street, there are small investing
boutiques who may invest in these segments in contrast to the lower nano cap, which is
dominated by the retail investor base. Liquidity is better with the Micro Cap segment,
but one should understand that they are dealing with developing businesses that may not be
as resilient as larger companies. Above 300 million and up to 2 billion market
cap one finds the Small Cap. These are businesses that are more established
than their nano and micro counterparts, as their Market Cap is sufficiently large. Wall
Street funds follow these better, and one would find good liquidity investing in them. Between 2 billion and about 10 billion Market
Cap exists the Mid Cap segment of the market. Here exist those companies that have been
doing well for some time now, growing and expanding into this size. These companies are not only sufficiently
liquid, but they have a more profitable stable future allowing investors to reduce the amount
of risk they take when investing. Between 10 billion and 100 billion Market
Cap exists the Large Cap segment and its members are usually known and respected businesses
that have been doing very well for a very long. These businesses are mature and many
times are considered very safe, steady investments. Above the 100 Billion Market Cap exist the
Mammoths of the Public Companies – the Mega Caps. These are the massively large and known
businesses: the Apples, the Exxon Mobils, the Berkshire Hathaways, the Googles, and
the Microsofts of the world, having attained their status after many-many
years of steady, profitable growth they have come to dominate their industries. Due to the way Market Cap is calculated, it
has all the frailties discussed in our previous tip about Price/Earning Ratio, so one should
consider these when thinking about Market Cap. In addition, one should always keep in mind
that since an investor is, in fact, purchasing part of a business, there are additional factors
they should pay attention to when determining the total value of the business – factors
that can result in a large difference between the total Enterprise Value and the Market
Cap. To learn more, you might want to review the video on Enterprise Value.

2 thoughts on “What is Market Capitilazation? – Investment Tips

  1. ► Want to know more? Click here: http://www.invest-owl.com/glossary/market-capitalization/

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  2. Great videos.

    Just some feedback from me. Videos on your channel often mention another separate video that lies somewhere on your channel. I believe it would be a good idea to provide a link to any other videos mentioned, down at the bottom of the information section of the current video.

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