Market Capitalisation

Market Capitalisation or MCap is referred as the total market value of a company’s outstanding shares. It is calculated by multiplying the number of outstanding shares to the current market value of one share. It determines a company’s size and then compares its financial performance with other companies of various sizes.

Market cap measures what a company is worth on the open market, as well as the market's perception of its future prospects, because it reflects what investors are willing to pay for its stock.

Companies with larger caps are regarded as safer investments. A company’s market cap is determined through an initial public offering. The market cap never measures the equity value of a company. Market cap does not affect stock price. It is a valuable tool for an investor watching stocks and seeking potential investments. It is in fact the faster way to estimate a company’s value by concluding what the market thinks of its hold.

Large-cap firms often have a reputation for producing quality goods and services, a history of consistent dividend payments, and steady growth. They are often dominant players within established industries, and their brand names may be familiar to a national consumer audience. As a result, investments in large-cap stocks may be considered more conservative than investments in small-cap or mid-cap stocks, potentially posing less risk in exchange for less aggressive growth potential.

Mid Cap companies are established companies in industries expected to experience rapid growth. These medium-sized companies may be in the process of increasing market share and improving overall competitiveness. This stage of growth is likely to determine whether a company eventually lives up to its full potential. Mid-cap stocks generally fall between large caps and small caps on the risk/return spectrum. Mid-caps may offer more growth potential than large caps, and possibly less risk than small caps.

Small cap companies are young companies that serve niche markets or emerging industries. Small caps are considered the most aggressive and risky of the 3 categories. The relatively limited resources of small companies can potentially make them more susceptible to a business or economic downturn. They may also be vulnerable to the intense competition and uncertainties characteristic of untried, burgeoning markets. On the other hand, small-cap stocks may offer significant growth potential to long-term investors who can tolerate volatile stock price swings in the short term.