# Market Capitalization ( MCAP )

Investment Formula Description

Market capitalization ( MCAP ) or market cap is the total dollar market value of all of the corporation's outstanding shares.

To calculate market capitalization ( MCAP ) or market cap of a corporation, investors just need to multiply the number of shares outstanding with current price of the corporation's stock. Market capitalization ( MCAP ) or market cap are widely used by investors to assess the company size. Market capitalization ( MCAP ) or market cap does not represent the total assets of the corporation or company capitalization since the market value of the corporation or stock price is determined by the market based on perceived future prospects, economic and monetary conditions. On the other words, market capitalization ( MCAP ) or market cap represents the public opinion of a corporation's net worth and it does not represent the total assets owned by the corporation.

Corporations can be categorized to three size based on the market capitalization of the corporations as following. The figure to determine the capital size of the corporations is different for different stock market. The following capital size is just for reference.

• Large-cap - market cap over \$5 billion
• Mid-cap - market cap between \$1 billion to \$5 billion
• Small-cap - market cap below \$1 billion

Some corporate activities such as share buy back will reduce market capitalization ( MCAP ) or market cap for the corporations. Besides, market capitalization ( MCAP ) or market cap is used in market to book ratio and price book ratio ( P/B ratio ) to compare between market value and book value for corporations.

Investment Formula

Market Capitalization ( MCAP ) or market cap = Current stock price X Total Outstanding Shares.

Investment Formula Example

Current stock price for corporation EFG is \$ 2 and it has total 5,000,000 outstanding shares. The market capitalization ( MCAP ) or market cap calculation is as following.
Market Capitalization ( MCAP ) or market cap = Current stock price / Total Outstanding Shares  = 2 X 5,000,000 = \$10,000,000

Corporation EFG's market capitalization ( MCAP ) or market cap is \$10,000,000.

Corporation EFG declare share buy back to buy back 1,000,000 unit of its share and keep as treasury shares. The updated market capitalization ( MCAP ) or market cap calculation is as following.

Total Outstanding Shares = Original Total Outstanding Shares - Total Shares buy back  = 5,000,000 - 1,000,000 = 4,000,000

Market Capitalization ( MCAP ) or market cap = Current stock price / Total Outstanding Shares  = 2 X 4,000,000 = \$8,000,000

Market capitalization ( MCAP ) or market cap for Corporation EFG was reduced from \$10,000,000 to \$8,000.000 after it performed its share buy back activities. This proved that share buy back will reduce market capitalization ( MCAP ) or market cap for corporation even though the share still keep in treasury shares and did not eliminate yet.