how to calculate market cap
market capitalization estimates a company s value by extrapolating what the market thinks it is worth for publicly traded companies and multiplying the share price by the number of available shares after a company goes public and begins trading on an exchange its share price is determined by supply and demand as market prices move the market cap becomes a real time estimate of the company s value the formula for market capitalization is a company with 20 million shares selling at 100 a share has a market cap of 2 billion a second company with a share price of 1 000 but only 10 000 shares outstanding has a market cap of 10 million an initial public offering ipo helps determine a company s first market capitalization an investment bank employs valuation techniques to derive a company s value and determine how many shares will be offered to the public and at what price market cap and company sizelarge cap companies typically have a market capitalization of 10 billion or more and represent major players in well established industries and sectors 1 these companies generally reward investors with a consistent increase in share value and dividend payments examples of large cap companies include apple inc microsoft corp and alphabet inc mid cap companies generally have a market capitalization between 2 billion and 10 billion 2 mid cap companies operate in an industry expected to experience rapid growth mid cap companies are in the process of expanding and carry an inherently higher risk than large cap companies one example of a mid cap company is eagle materials inc exp 3companies with a market capitalization between 250 million and 2 billion are commonly classified as small cap companies these small companies may serve niche markets and new industries these companies are considered higher risk investments due to their age the markets they serve and their size small cap share prices may be more volatile but provide greater growth opportunities than large caps smaller companies known as micro cap have values below 250 million 2market cap and digital currencybecause new digital currency offerings theoretically thin the value of existing coins tokens or shares a different market cap formula can be used to calculate the market cap for all authorized shares or tokens analysts use diluted market cap to understand potential changes to a security token or coin s price 4 the diluted market cap formula is assume bitcoin trades at 24 000 per coin with 19 1 million bitcoin already issued the total number of potential bitcoin that may be minted is 21 million therefore bitcoin s market cap calculations are market cap 24 000 19 1 million 458 4 billiondiluted market cap 24 000 21 million 504 billionmisconceptions about market capsalthough it is used to describe a company market capitalization does not measure the equity value of a company only a thorough analysis of a company s fundamentals can do that shares are often over or undervalued by the market meaning the market price determines only how much the market is willing to pay for its shares the market cap does not determine the amount the company would cost to acquire in a merger transaction a better method of calculating the price of acquiring a business outright is the enterprise value 