Create Date: October 13, 2024
Last Modified Date: December 2, 2024
Market cap is a rather simple metric to calculate. It requires only two variables:
When you hit calculate, you will get a single number as a result. This number represents the total value of a company. The higher the number, the more valuable the company is. A common misconception is that a company that has a smaller stock price is worth less than one that has a higher stock price. There are many scenarios where a smaller stock priced company is actually worth more in market cap than the greater share price company. This largely has to do with the number of outstanding shares which is why using market cap to compare company sizes is better than sheer share price.
Since the formula for calculating market cap is rather simple, using this tool is also very simple. The steps involved include:
Let's say you are reviewing a company and want to see how valuable it is. It has a total of 75,000,000 outstanding shares at a price of $6.25 per share. To get the market cap, we do the following: 75,000,000 x 6.25 to get a total market cap of $468,750,000.
Yes, the higher the market cap of a company, the more it is worth and valued at, which is generally better.
A higher market cap does not mean that the stock price is higher. For example, if there are two companies with a market cap of $50 million, one company may have fewer outstanding shares and thus a higher share price, while the other has more outstanding shares and a lower share price. Therefore, market cap is not indicative of share price.
A company's market cap is not the amount of money they have in liquid assets. It represents the perceived total value of the company in the market.
No, market cap is not revenue. It is the result of multiplying outstanding shares by the share price of a company.
