What the market says a company is worth
Market capitalisation is the share price multiplied by the number of shares outstanding. It is the figure that sorts companies into large, mid and small cap, and the one that decides which index a share belongs to.
The formula
Worked example: $50 a share, 100,000,000 shares
- Market cap: $5,000,000,000
Five billion places the company at the boundary between mid and large cap under most definitions. A 10% move in the share price moves the valuation by $500 million with no change in the business whatsoever.
The size bands
| Band | Market cap | Typically |
|---|---|---|
| Mega | Above $200bn | A few dozen companies globally |
| Large | $10bn – $200bn | Index constituents, broad analyst coverage |
| Mid | $2bn – $10bn | Established, still growing |
| Small | $300m – $2bn | Less liquid, more volatile |
| Micro | Below $300m | Thin trading, wide spreads |
The bands matter because index funds buy and sell on them. Crossing $10bn can bring forced buying from large-cap funds; falling below it can bring forced selling, independent of anything the company did.
Market cap is not what a buyer pays
Acquiring the whole company means taking on its debt and receiving its cash. Enterprise value adds net debt to market cap. A company with $5bn of market cap and $2bn of net debt costs $7bn to buy outright; one with $1bn of net cash costs $4bn.
Comparing two companies on market cap alone can therefore rank them backwards. Enterprise value is the figure for that comparison.
Shares outstanding is not shares issued
Treasury shares the company has bought back are issued but not outstanding, and options and convertibles may add shares later. Most data sources use basic shares outstanding; a diluted figure can be several percent higher and lowers the value of each existing share by the same amount.
What this calculator leaves out
Free float. If founders hold 60% of the shares, only 40% of the market cap actually trades, and index providers weight by that float rather than by the full figure.
Why the figure moves without the company changing
Market cap is a price, not a valuation. It reflects what the marginal buyer and seller agreed on in the last trade, multiplied across every share including the 99.9% that did not trade that day.
A single block sale at a discount can reprice the whole company on paper. This is why analysts use it as an input to ratios rather than as a conclusion, and why a cap that has doubled in a year may say more about sentiment than about earnings.
Cap-weighted indexes
Most index funds hold each company in proportion to its market cap. A company at $5bn in a $50 trillion index is 0.01% of every tracker, and each dollar of new inflow buys that fraction of its shares regardless of price.
This is why the largest companies keep getting larger in index-heavy markets, and why crossing into a major index is itself a source of demand.
Related calculators
- Enterprise value calculator — what an acquirer actually pays
- Free float calculator — the part of the cap that trades
- P/E calculator — market cap against what the company earns