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John Bogle

Investment Dictionary


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Market Capitalization

 

Market capitalization (market cap) is a company’s value (price) on the stock exchange. Market capitalization is calculated by multiplying the outstanding share number by the last share price on the exchange. 

 

Market capitalization should be the main criteria to size the companies because it shows more than just sales or profit. Market capitalization also can be used for rough calculations of many market multiples, like P/E or P/Bv. 

 

The bigger market capitalization of the company is, the bigger the company should be according to many criteria like revenue, EBITDA, net profit, NAV. Capitalization usually fluctuates together with stock market movements.

 

The stocks which have the biggest market capitalization attract the most attention from the investors. There are a lot of index funds that are investing only in the largest companies (large cap stocks).

 






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