Market Capitalization

Market capitalisation (market cap) is simply the share price multiplied by the total number of shares outstanding. If a company has 1 billion shares priced at $50 each, its market cap is $50 billion. Market cap represents what the stock market currently thinks the entire business is worth.

Market cap is commonly used to categorise companies. Large-cap companies (typically above $10 billion) are established businesses with stable earnings. Mid-cap companies (roughly $2–10 billion) offer a balance of growth and stability. Small-cap companies (below $2 billion) can grow faster but tend to be more volatile and carry higher risk.

Market-cap weighted index funds invest more money in larger companies, which means the performance of the biggest companies in an index has the greatest influence on the fund's returns. This is one reason why a handful of mega-cap technology companies now drive a large proportion of broad market index returns.