Market Cap: What a Whole Company Is Worth on the Stock Market
Market cap, or market capitalization, is what a whole company is worth on the stock market: the price of one share (one slice of ownership) times the number of shares. It sorts companies by size, something a share price alone cannot do. Market cap moves whenever the price moves, so it is a snapshot of today, not a fixed fact.
What It Means
A company is divided into shares, and each share is one small slice. The share price says what one slice costs. The number of shares says how many slices exist. Multiply the two and you get the value the stock market puts on all of them together.
That is why a share price tells you so little about size: a company can have a high price and few shares, or a low price and a great many. It also changes when a company repurchases its own shares or issues new ones.
How It's Calculated
Multiply the share price by the number of shares. The table uses three made-up companies, and every figure is made up. The last column places each one in a size band, and the bands are listed below the table.
| Made-up company | Share price | Number of shares | Market cap | Size band |
|---|---|---|---|---|
| X | $20 | 50 million | $1 billion | Small |
| Y | $200 | 2 million | $400 million | Small |
| Z | $8 | 2 billion | $16 billion | Large |
Company Y has the most expensive share and Company Z has the cheapest, yet Z is the biggest company by far: $8 times 2 billion shares is $16 billion, while $200 times 2 million shares is $400 million.
Rapunzl's Stock Scanner has five size bands, which work as filter presets.
| Band | Market cap |
|---|---|
| Mega | Over $200B |
| Large | $10B to $200B |
| Mid | $2B to $10B |
| Small | $300M to $2B |
| Micro | Under $300M |
How to Read It
Three readings make the number easier to use.
- Place the company in a band. The band tells you the rough size at a glance. A company worth $4.5 billion is Mid, and one worth $150 million is Micro.
- Look at market cap before the share price. A higher share price does not mean a bigger company, as the made-up table shows. When you compare companies, compare what each whole company is worth.
- Connect size to how a stock moves. The Stock Scanner's note on this field is that small companies often swing more in price than large ones. One way to measure those swings is average true range. Size is one clue about how a stock moves, not a verdict on it.
Where It Misleads
Market cap is a price tag, not a report card. The Stock Scanner's note on this field is that it is not what the company earns or owns, so a big number does not mean a healthy business.
Big is not safe. Being big does not protect a stock from falling, and large companies can also grow more slowly.
Market cap is also not what the company would fetch in a sale. It applies today's share price to every share, and a sale of the whole company is a different deal. Because the price changes, a company near a band's edge can move into the next band and back again.
Try It in Rapunzl
To screen by size, open the Size & sector category in the Stock Scanner and pick Company size, which is what the whole company is worth at today's share price. You can choose a band (Mega, Large, Mid, Small or Micro) or set your own At least, At most or Between range.
Two ready-made ideas show it at work. "Household names" lists companies worth $200B or more. "Under $20 a share" lists stocks that cost $1 to $20 a share, are worth $300M or more and trade actively, and its warning is worth repeating: a cheap share price is not a cheap company, so look at market cap, not just price. Many other ideas use market cap as a floor, such as $2B or more, to keep to established companies. Established does not mean safe: those stocks can still fall.
A 15-Minute Class Activity
Size Sort. Students work in pairs with a calculator and six index cards, one for each made-up company below. Write each band's name and cutoffs on its own sheet of paper: Mega (over $200B), Large ($10B to $200B), Mid ($2B to $10B), Small ($300M to $2B) and Micro (under $300M). All figures are made up.
| Made-up company | Share price | Number of shares |
|---|---|---|
| Alder Co. | $12 | 30 million |
| Birch Inc. | $250 | 4 million |
| Cedar Corp. | $45 | 100 million |
| Dune Ltd. | $9 | 4 billion |
| Ember Co. | $3 | 50 million |
| Fjord Corp. | $400 | 600 million |
- 2 minutes. Show the formula and work Alder Co. together: $12 times 30 million is $360 million.
- 5 minutes. Pairs work out the market cap for the other five companies and write it on each card.
- 3 minutes. Pairs lay each card on the matching band sheet and check with the next pair. The answers are Alder Small, Birch Small ($1 billion), Cedar Mid ($4.5 billion), Dune Large ($36 billion), Ember Micro ($150 million) and Fjord Mega ($240 billion).
- 2 minutes. Pairs rank the cards from highest share price to lowest, then from highest market cap to lowest, and circle the company whose rank changes the most. It is Dune, which has the second-lowest share price and the second-largest market cap.
- 3 minutes. Exit ticket: a friend says a $9 share must be a small company. In one sentence, use Dune Ltd. to show why that is wrong.
Related Indicators
- P/E Ratio: price against profit per share, the next company number to learn.
- How to Calculate EPS: the profit per share that sits behind a company's earnings.
- Trading Volume: how many shares change hands, a separate question from how big the company is.
- Technical Analysis: reading price charts, a different approach from reading company size.
Frequently Asked
Questions
Share price is what one share costs. Market cap is that price times every share, so it shows what the whole company is worth on the stock market.
No. Market cap measures size, and size and quality are separate questions.
Yes, whenever the share price moves. It also changes when a company repurchases its own shares or issues new ones.
The Small band covers $300M to $2B. Anything under $300M is Micro.
Teach Company Size With Rapunzl
Request a demo and bring the Stock Scanner, charts and simulator into a lesson on company numbers. The family side is on our parents page.
Indicators, patterns and examples in this article are for education and are not investment advice or a recommendation to buy or sell any security.
By Clarissa Collins, Curriculum Designer at Rapunzl.