Market capitalization, or Market Cap in English, is calculated by multiplying the total number of outstanding shares of a listed company by the current stock price. A company's market capitalization will continue to change with changes in its stock price or number of shares outstanding. According to the company's market value, listed companies can be divided into large-cap stocks (Large-cap), mid-cap stocks (Mid-cap), small-cap stocks (small-cap) and micro-cap stocks (micro-cap). The initial market capitalization of a public company is determined at the time of its Initial Public Offering. Before an IPO, a company will hire a professional investment bank to value the company, and then use this value to determine the number of shares to be offered to the public and the price of the shares. For example, if a company is valued at $1 billion, it can sell 10 million shares at a price of $100 or 50 million shares at a price of $20 during its initial offering. Because when a company undergoes a stock split or split, the stock price adjusts accordingly as the number of shares increases. For example, when a company decides to split its stock at a ratio of 1:2, the stock price will be halved accordingly, while the number of outstanding shares will double, without affecting the company's market value. How to calculate the market value of a listed company? This chapter will perform example calculations using Apple’s financial report released in September 2023: The number of outstanding shares in AAPL's financial report is as follows: AAPL Financial Report Data source The summary data is as follows: Value at the end of September 2023 Number of ordinary shares outstanding 15,744,231 thousand Share price $171.21 Market capitalization = number of shares outstanding x stock price = 15,744,231 x 1000 x $171.21 = $2.695 billion What investment guidance does market value have? Market capitalization is an important indicator of a company's size and reflects the market's assessment of the company's total value. Listed companies are divided into several main categories based on their market capitalization: large-cap stocks, mid-cap stocks, small-cap stocks and micro-cap stocks. Investors can allocate their portfolios based on market capitalization. Generally, large companies (large market capitalization companies) are relatively stable and have lower risks and are suitable for conservative investors; medium-sized companies (medium market capitalization companies) have greater growth potential and are suitable for balanced investors; small companies (small market capitalization companies), although higher risk, also have greater room for growth and are suitable for aggressive investors. market capitalization range Investment characteristics large cap stocks More than US$10 billion Investment income is more stable; the growth rate will be relatively small; mid-cap stocks US$2 billion to US$10 billion Investment risks and returns are slightly higher than those of large-cap stocks, but less than those of small-cap stocks; small cap stocks US$300 million to US$2 billion The investment risk is higher than that of mid-cap stocks; because it has higher room for growth, it may also generate high returns; micro-cap US$50 million to US$300 million Stock price volatility is very high, with very high investment risks and investment returns; At the same time, companies with larger market capitalization usually have actively traded stocks, strong liquidity, easy buying and selling, and investors can adjust their positions more quickly. Companies with small market capitalization may not be actively traded, have poor liquidity, and may be at risk of difficulty in trading. In addition, market value can be used as a reference indicator for investment risk assessment. Companies with large market capitalization usually have stable operations and strong ability to resist risks; companies with small market capitalization have relatively weak ability to resist risks due to their small scale and higher investment risks. What are the limitations of market capitalization? Based on how market capitalization is calculated, it can be seen that market sentiment will directly affect a company's stock price and thus its market capitalization. Therefore, for a company's true operating capabilities, it is not comprehensive enough to evaluate it solely based on market value. At the same time, market value cannot reflect a company's debt capacity, profitability, etc. Therefore, if you want to evaluate a company's operating level, you need to combine more data and analyze the company's fundamentals to make a more reasonable and comprehensive evaluation. Finally, it's important to note that while market capitalization measures the cost of purchasing all of a company's shares, market capitalization does not determine the cost of acquiring a company in an M&A transaction. A better metric for calculating the purchase price of a business is enterprise value. Enterprise value = market capitalization + total debt − cash and cash equivalents
Enterprise value takes into account the impact of the company's capital structure and can more comprehensively reflect the company's overall financial status. In contrast, market capitalization only reflects the market price of a company's shares and does not take into account the impact of a company's liabilities and cash. List of the 50 companies with the highest market capitalization The data below is for July 2024: Listed company stock code market capitalization country Apple AAPL$3.405 T🇺🇸 USA Microsoft MSFT$3.109 T🇺🇸 USA NVIDIA NVDA$2.878 T🇺🇸 USA Alphabet (Google) GOOG$2.111 T🇺🇸 USA Amazon AMZN$1.945 T🇺🇸 USA Saudi Aramco 2222.SR$1.781 T🇸🇦 S. Arabia Meta Platforms (Facebook) META$1.211 T🇺🇸 USA Berkshire Hathaway BRK-B$945.18 B🇺🇸 USA TSMC TSM$859.85 B🇹🇼 Taiwan Broadcom AVGO$782.48 B🇺🇸 USA Tesla TSLA$772.74 B🇺🇸 USA Eli Lilly LLY$724.16 B🇺🇸 USA JPMorgan Chase JPM$605.43 B🇺🇸 USA Novo Nordisk NVO$587.61 B🇩🇰 Denmark Walmart WMT$552.10 B🇺🇸 USA Exxon Mobil XOM$531.98 B🇺🇸 USA UnitedHealth UNH$530.28 B🇺🇸 USA Visa V$514.01 B🇺🇸 USA Tencent TCEHY$433.04 B🇨🇳 China Mastercard MA$427.75 B🇺🇸 USA Samsung 005930.KS$405.32 B🇰🇷 S. Korea Oracle ORCL$384.30 B🇺🇸 USA Johnson & Johnson JNJ$379.98 B🇺🇸 USA Procter & Gamble PG$378.92 B🇺🇸 USA ASML ASML$374.76 B🇳🇱 Netherlands Home Depot HD$365.07 B🇺🇸 USA Costco COST$364.42 B🇺🇸 USA LVMH MC.PA$354.66 B🇫🇷 France AbbVie ABBV$327.25 B🇺🇸 USA Bank of America BAC$313.40 B🇺🇸 USA Chevron CVX$293.46 B🇺🇸 USA Coca-ColaKO$287.64 B🇺🇸 USA Merck MRK$286.53 B🇺🇸 USA Netflix NFLX$269.66 B🇺🇸 USA ICBC 1398.HK$265.71 B🇨🇳 China Toyota TM$262.91 B🇯🇵 Japan Roche ROG.SW$262.23 B🇨🇭 Switzerland Nestlé NESN.SW$261.13 B🇨🇭 Switzerland Salesforce CRM$250.77 B🇺🇸 USA AstraZeneca AZN$250.61 B🇬🇧 UK SAP SAP$249.90 B🇩🇪 Germany
International Holding Company IHC.AE$247.73 B🇦🇪 UAE Kweichow Moutai 600519.SS$247.32 B🇨🇳 China Adobe ADBE$244.60 B🇺🇸 USA Reliance Industries RELIANCE.NS$243.39 B🇮🇳 India Pepsico PEP$237.17 B🇺🇸 USA Thermo Fisher Scientific TMO$234.12 B🇺🇸 USA AMD AMD$233.52 B🇺🇸 USA L’Oréal OR.PA$232.28 B🇫🇷 France HermèsRMS.PA$229.54 B🇫🇷 France More investment guides What is the Federal Reserve Balance Sheet? Explore the Fed’s 24 primary dealers What is the National Financial Conditions Index? Published by the Chicago Fed What is the Buffett indicator? Buffet Indicator What is the U.S. Treasury Volatility Index? Move Index What dollar index? US Dollar Index What are bank deposit reserves? Bank Reserves What are open market operations? Open Market Operations What is the reserve balance interest rate? Interest in Reserve Balances What is the Personal Consumption Expenditure Index? PCE Price Index