The value of a corporation
derived by multiplying its stock price by the number of outstanding shares. For
example, a company with a stock price of $20 and 10 million shares outstanding
has a market capitalization of $200 million.
The value of a
company’s market capitalization determines whether it is small cap, mid cap, or large cap. However, cap size definitions vary
greatly among financial firms. A general guideline is that a small-cap company
has a market capitalization of $300 million to $1 billion; a mid-cap company
ranges from $1 billion up to $5 billion; and a large-cap company is over $5
billion. Sometimes, companies under $300 million are called micro-cap companies. To calculate the market capitalization of foreign
companies that have issued American Depositary Receipts (ADR) in the United
States, only the outstanding ADR shares are used, and shares that are issued
and traded in other countries are excluded.