Subject: Stocks - Market Capitalization

Last-Revised: 11 Mar 1997
Contributed-By: Chris Lott (contact me)

The market capitalization (or "cap") of a stock is simply the market value of all outstanding shares and is computed by multiplying the market price by the number of outstanding shares. For example, a publically held company with 10 million shares outstanding that trade at US$20 each would have a market capitalization of 200 million US$.

The value for a stock's "cap" is used to segment the universe of stocks into various chunks, including large-cap, mid-cap, small-cap, etc. There are no hard-and-fast rules that define precisely what it means for a company to be in one of these categories, but there is some general agreement. The Motley Fool offers these guidelines:

• Large-cap: Over $5 billion
• Mid-cap: $500 million to $5 billion
• Small-cap: $150 million to $500 million
• Micro-cap: Below $150 million

When reading a mutual fund prospectus, you may see the term "median market cap." This is just the median of the capitalization values for all stocks held by the fund. The median value is the middle value; i.e., half the stocks in the fund have a market capitalization value below the median, and the other half above the median. This value helps you understand whether the fund invests primarily in huge companies, in tiny companies, or somewhere in the middle.

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