Most often referred to as "Market cap", It's one way an investor can evaluate how much a company is worth.
Market capitalization tells how much an organization or company is worth or the total market value of all the outstanding shares of a company, And this is determined by the stock market.
To know or calculate the market cap of any public company like Tesla, Amazon, FB, Coca-Cola, Twitter and so on, You simply multiply the total number of outstanding shares by the current market value of one share.
Market Cap = Total number of Company shares X Share Price.
Let's take Coca-Cola for example:
Coca-Cola has 4.3 Billions Shares, And
It's share price is $54
Coca-Cola's Market Cap = $4.3 Billion x $54 = $232 Billion
So Coca-Cola market Capitalization is $232 Billion U.S Dollars.
Understanding how much a company is worth will help you ascertain the company's value and know if it's worth investing in or not.
Market cap is most often used for risk assessment of potential assets You want to buy, And it'll be a good factor in choosing which companies to invest in and then diversifying your portfolio accordingly.
1. Large cap - Companies with $10 Billion or more, They are mostly well established or been around for a long time, and most often return profits in the long run, This type of companies are not ideal for short-term investing.
2. Mid Cap - Companies with market cap of about $2-10 Billion U.S Dollars, They are usually not very established or renown companies like the former, But with great growth potentials.
3. Small Cap - Consists mostly of new industries, very volatile, small size and with great potentials than large cap companies. They have a market cap between $300 Million to $2 Billion U.S Dollars.
Companies with above $200 billion in market cap are called Mega Cap and companies below $300 million in values are Micro cap.
If you're trying to create an investment strategy that will help you pursue your long term financial goals, Then understanding how market capitalization works will teach you to recognize risk and reward potentials, Asset Allocation and having a balanced portfolio that comprises a mix of Large, Mid and Small Capped Companies.