Understanding Market Capitalization and its Importance

Market capitalization is the total dollar value of a company's outstanding shares. It is also referred to as a market cap. Market capitalization is calculated by multiplying the current share price by the number of shares outstanding. For example, if a company has 10 million shares outstanding and its stock price is $100, then its market cap would be $1 billion. The market cap for a company can change over time if their share price changes or they issue more shares. Visit MultiBank Group

Importance of market capitalization

Certain traders and investors, generally amateurs, could consider a stock's price to be an accurate representation of a company’s net worth, health, and/or stability. They might think that an increased stock price could be a measure of a company’s stability, or a low rate could be an investment opportunity available at a bargain. 

Stock prices by themselves don’t indicate a company's actual worth. Market capitalization is what one should look at as it indicates the actual value as seen by the overall market.


When there are billions of dollars worth of valuation, a large-cap company will be able to consider investing some millions into a new line of business and not take a major hit if the venture is not a success. But in the case of a mid-cap or micro-cap company that makes an investment of a similar amount, a failing venture would impact them majorly. However, should the company be able to make the venture a success and thus expand its business, it could earn significant profit while something of this in the case of a mid-cap company would be great for its overall valuation. It would take its market cap and valuation to new heights. View MultiBank