Most investors choose to diversify their portfolios by selecting stocks from large-cap, mid-cap and small-cap companies. Differences in market capitalization generally mean differences in the risk associated with a particular stock. Individuals participating in the stock market will likely find researching the market capitalization of companies valuable as they decide where to put their money. Here are some important details about market capitalization for both investors and employees in the financial sector, such as financial advisers : Investors Market capitalization provides a quick measurement of the size of a company and the relative risk of investing with that company. Related: Why Market Value Is Important Why is market capitalization important? If ERB's stock prices go up to $30 a share at 10 million stocks, its market capitalization would be $300 million. Multiplying the issued stock number by the cost of an individual stock results in a market capitalization of $200 million. An individual stock costs $20 at the close of the market. Publicly traded company ERB has 10 million stocks issued. Number of stock shares x Closing price per share = Market capitalization ![]() To calculate a company's market capitalization, take the number of shares of stock issued by the company and multiply it by the closing price of one share. ![]() These levels of risk are divided into five categories by market value. Smaller companies, which are often younger, may offer more rewards as they grow but usually carry heavier risk. Market cap is useful for determining a company's size, which can indicate a lot about a company's potential for an investor.įor example, large companies are usually safer investment choices due to their longevity and stability. Market cap only reflects a company's market value, not its debts or liabilities. This is often referred to as "market cap.” Market capitalization refers to how much a publicly traded company is worth based on its total stock value within the larger stock market.
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