InvestorQ : Can you explain the concept of market capitalization and how it can be useful for understanding companies?
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Can you explain the concept of market capitalization and how it can be useful for understanding companies?

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1 year ago


Market cap or market capitalization or market value is a common method of comparing companies across the world in dollar terms. For example, large companies like Amazon, Apple and Microsoft have market capitalization values of close to $1 trillion. Check this table of largest company market cap list to understand and we have looked at a global level.

Symbol

Company

Cap Rank

Market Cap

1d Chg

1m Chg

12m Chg

-

-

on 8/8/19

on 8/8/19

on 8/8/19

on 8/8/19

on 8/8/19

MSFT

Microsoft

1

1,060.50

2.70%

1.40%

26.90%

AAPL

Apple

2

919.3

2.20%

1.70%

-1.80%

AMZN

Amazon.com

3

906.7

2.20%

-6.10%

-2.80%

GOOGL

Alphabet

4

835.9

2.60%

8.00%

-4.40%

FB

Facebook

5

542.5

2.70%

-2.90%

2.70%

BRK.A

Berkshire Hathaway

6

492.3

0.90%

-6.40%

-4.20%

BABA

Alibaba

7

422.4

1.90%

-88.00%

-8.60%

V

Visa

8

390.9

2.60%

2.10%

27.90%

JPM

JPMorgan Chase

9

351.3

1.70%

-2.70%

-6.70%

JNJ

Johnson & Johnson

10

347.5

1.10%

-6.60%

0.40%

WMT

Wal-Mart

11

309.8

0.30%

-3.70%

20.50%

XOM

Exxon Mobil

12

306.2

2.70%

-5.40%

-10.30%

PG

Procter & Gamble

13

293.9

1.70%

3.00%

42.60%

MA

MasterCard

14

278.9

3.20%

2.50%

37.10%

BAC

Bank of America

15

264.2

1.80%

-2.80%

-10.80%

T

AT&T

16

252.4

1.40%

0.80%

6.70%

DIS

Disney

17

248.4

2.20%

-2.20%

21.00%

RDS.A

Royal Dutch Shell

18

239.9

1.70%

-9.90%

-13.70%

UNH

UnitedHealth

19

235.3

0.50%

-0.10%

-4.30%

CVX

Chevron

20

234.7

3.50%

-0.30%

-0.50%

HD

Home Depot

21

232.8

1.80%

-0.60%

6.80%

VZ

Verizon

22

230.7

1.30%

-3.60%

5.90%

KO

Coca-Cola

23

229.6

1.00%

3.30%

16.30%

CSCO

Cisco Systems

24

227.6

1.60%

-5.40%

21.30%

TSM

Taiwan Semiconductor Manufacturing

25

217.3

1.60%

6.60%

-0.20%

MRK

Merck

26

216.9

0.60%

0.80%

27.10%

NVS

Novartis AG

27

209.1

2.70%

0.50%

9.20%

INTC

Intel

28

209

0.90%

-1.40%

-5.60%

PFE

Pfizer

29

205

0.80%

-14.80%

-11.00%

WFC

Wells Fargo

30

204.4

1.30%

-2.40%

-21.60%

CMCSA

Comcast

31

193.9

2.20%

0.10%

21.70%

BA

Boeing

32

189.3

1.50%

-4.20%

-3.30%

ORCL

Oracle

33

182.3

2.50%

-8.20%

12.90%

TM

Toyota

34

181.8

0.90%

2.00%

1.80%

PEP

Pepsi

35

181

1.30%

-2.30%

14.10%

MCD

McDonald's

36

166.5

0.50%

2.80%

37.20%

CHL

China Mobile

37

165.9

0.80%

-10.60%

-10.10%

BUD

Anheuser Busch Inbev

38

160.9

0.30%

7.40%

-1.00%

HSBC

HSBC

39

155.6

0.20%

-8.30%

-18.70%

ABT

Abbott Laboratories

40

151.2

1.10%

0.60%

32.00%

C

Citigroup

41

150.8

2.50%

-6.20%

-8.40%

SAP

SAP SE

42

145.1

0.90%

-12.20%

4.70%

ADBE

Adobe

43

144.6

3.00%

-1.70%

17.30%

NFLX

Netflix

44

138.3

3.80%

-16.00%

-9.10%

MDT

Medtronic

45

137.2

0.90%

4.30%

12.60%

ACN

Accenture

46

130.5

2.80%

2.00%

20.50%

NKE

Nike

47

130.1

2.10%

-6.20%

3.10%

TOT

Total

48

128.3

1.10%

-11.30%

-23.40%

PM

Philip Morris

49

128.3

1.40%

3.60%

-1.50%

BP

BP

50

126.3

-1.00%

-9.50%

-16.70%

Market cap—or market capitalization—refers to the total value of all a company's shares of stock. It is calculated by multiplying the price of a stock by its total number of outstanding shares. For example, a company with 20 million shares selling at $50 a share would have a market cap of $1 billion.

Why is market capitalization such an important concept? It allows investors to understand the relative size of one company versus another. 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.

Let us understand market cap versus free-float market cap

Market cap is based on the total value of all a company's shares of stock. Float is the number of outstanding shares for trading by the general public. The free-float method of calculating market cap excludes locked-in shares, such as those held by company executives and governments. Free-float methodology has been adopted by most of the world’s major indexes, including the Dow Jones Industrial Average and the S&P 500.

What are the factors that impact market capitalization of a company

There are several factors that could impact a company's market cap. Significant changes in the value of the shares—either up or down—could impact it, as could changes in the number of shares issued. Any exercise of warrants on a company's stock will increase the number of outstanding shares, thereby diluting its existing value. As the exercise of the warrants is typically done below the market price of the shares, it could potentially impact the company's market cap.

But market cap typically is not altered as the result of a stock split or a dividend. After a split, the stock price will be reduced since the number of shares outstanding has increased. For example, in a 2-for-1 split, the share price will be halved. Although the number of outstanding shares and the stock price change, a company's market cap remains constant. The same applies for a dividend. If a company issues a dividend—thus increasing the number of shares held—its price usually drops.