What it is:
How it works (Example):
Let's assume Company XYZ has 10,000,000 shares outstanding and the current share price is $9. Based on this information and the formula above, we can calculate that Company XYZ's market capitalization is $90 million (10,000,000 x $9 = $90 million).
Companies with less than $1 billion of market cap are generally regarded as small-cap companies. Large-cap companies usually have at least $8 billion of market cap. Companies in between are mid-cap companies.
Why it Matters:
Thus market capitalization is a better measure of size than worth. This is why market capitalization is not the same as market value, which represents how much someone would actually be willing to pay for an asset (in this case, the entire company).