Market capitalization places a total dollar value on a company based on its outstanding shares. The market cap formula is simple — total outstanding shares multiplied by the current stock price. Market cap allows a company to be compared to competitors within its industry. Investors also use market cap as a measure of risk — a lower market cap can signify more risk.
Market cap is divided into three categories:
Small cap — $300 million to $2 billion
Mid cap — $2 billion and $10 billion
Large cap — Over $10 billion
Large cap companies are considered a low-risk staple of an investment portfolio.