Monfex Financial Dictionary Market Capitalization

Market Capitalization

Market capitalization is the total market value of a traded security or crypto-asset.

What Is Market Capitalization?

It is the value of the object, calculated on the basis of the current market (stock) price. This financial indicator is used to estimate the total value of market instruments, subjects, and markets. There are the following types:

Security - the market value of a certain type of securities issued.
Publicly traded (joint stock) company - the estimated value of all shares of this company. It is the total value of the number of company shares at their current price, which is more important than the per share price.
Stock market - the total market value of the securities circulating in this market.

Market Cap of a Company

The MC of a company is calculated according to the following formula:

Market capitalization = N (the number of shares outstanding) x P (the closing price per share)

For example, if a company has 2 million shares outstanding and the closing price per share is $10, it's market capitalization is then $20 million. If the closing price per share goes up to $11, the market cap becomes $22 million. If it falls to $9 per share, the market cap will drop to $18 million.

The size of Market capitalization and its growth are often characteristics of a successful company. However, it does not necessarily reflect the real state of affairs in a company, because the price of shares depends on the expectations of future profits and on speculation. For example, in the late 1990s, the market capitalization of many Dotcom companies reached billions of dollars, despite the fact that these companies not only did not generate profits but often had no sales at all. In other words, the price at which the market assesses a company based on recent equity transactions.

Despite measuring the cost of buying all of a company's shares, the MC does not define the amount that the company would cost if it is acquired as a result of a merger transaction. The enterprise value is a better method of calculating the business acquisition price. The largest company is Apple - as of 2018, the company's market capitalization was nearly $1 trillion, which is the largest indicator in the world. At the same time, Microsoft reached the historical record of the 20th century. In 1999, they reached 616.3 billion dollars. Considering inflation, today it is about 875.8 billion dollars.

Two key factors that can change a company's MC are:

significant changes in the stock price,
issuing or repurchasing shares.

An investor who exercises a large number of warrants can also increase the number of shares on the market and thus cause a negative impact on shareholders.

Terms

The companies are typically divided into large cap, mid cap, and small cap. However, there are also extra terms such as the mega cap, micro cap, and even nano cap. Different indexes use different numbers, so there is no official definition of the exact cutoff values, which may be defined as a percentage rather than in dollars. For example, The Balance evaluates companies with MC under $1 billion as a small cap, $1 billion to $10 billion as mid cap, and over $10 billion as a large cap. When calculating MC for the entire country, it is defined as the percentage of the country's GDP. For instance:

The current MC of the USA is $11.93 trillion or 108% of the GDP,
of the EU – $6.69 trillion or 59% of the GDP,
and of Japan - $2.68 billion or 75% of the GDP.

The values expressed in dollars need to be adjusted over the decades because of inflation, population change, and overall market valuation. For example, in 1950, $1 billion was a large market cap, but it is not considered as large now. Additionally, MCs vary from country to country.

Top 10 Companies by Market Cap

Here are the top 10 companies with the largest MC in the world, according to The Forbes Global 2000 rating as of 2019:

Apple, USA - $961.26 B
JPMorgan Chase&Co, USA - $368.5 B
ICBC, China - $305.06 B
Bank of America, USA - $287.34 B
Royal Dutch Shell, Netherlands - $264.94 B
China Construction Bank - $224.99 B
Ping An Insurance Group, China - $220.2 B
Wells Fargo, USA - $214.68 B
Agricultural Bank of China - $197.05 B
Bank of China - $142.96 B

Top 10 Stock Exchanges by Market Cap

Here is a list of the world's 10 major stock exchanges as of May 2019, according to their MC:

NYSE: $30,923
NASDAQ: $10,857
Japan Exchange Group: $5,679
Shanghai SE: $4,026
Hong Kong SE: $3,936
Euronext: $3,927
London Stock Exchange Group: $3,767
Shenzhen SE: $2,504
TMX Group: $2,095
Bombay SE: $2,056

Top 10 Cryptocurrencies by Market Cap

As of June 2019, the world's top 10 cryptocurrencies by market cap are:

Bitcoin: $147,221,272,060
Ethereum: $27,122,427,743
Ripple: $16,875,553,523
Litecoin: $8,156,917,370
Bitcoin Cash: $7,314,304,053
EOS: $5,890,278,369
Binance Coin: $4,642,403,310
Bitcoin SV: $3,713,100,825
Tether: $3,431,453,177
Stellar: $2,368,437,059

Summary

Market cap is the value of the object based on the current market price. A company MC is the total value of all of the company's shares. Specifically, it is the number of shares outstanding multiplied by the closing price per share. This index is more important than the per share price. However, the MC does not define the total cost of the company when it is acquired by another company – in this case, the enterprise value should be calculated.

Companies are typically classified by MC as small cap, mid cap, and large cap, but the indicators can vary from source to source and from country to country. The world's largest company by MC – almost $1 trillion - is Apple, followed by JPMorgan Chase&Co and Industrial and Commercial Bank of China (ICBC).

The stock exchange with the largest MC is the New York Stock Exchange (NYSE). Historically, the world's largest company by MC was Microsoft, with $616.3 billion in 1999. Today, it would be about $875.8 billion. As for cryptocurrencies, Bitcoin remains the leader with a market cap of $147,221,272,060.