In plain English

Market cap = share price × number of shares outstanding

It shows how big the market thinks a company is.

Example

A company with 100 million shares trading at $50 has a market cap of $5 billion.

Why it matters

Investors group companies into large, mid and small caps. Large caps are usually more stable, while small caps can grow faster and be riskier. The exact boundaries vary by index provider.

Common mistakes

  • Treating a large market cap as proof of a good investment. It measures size, not value.
  • Comparing share prices instead of market caps. A $500 share can be in a smaller company than a $50 one.