Mint Money Knowledge Center: What is 'market capitalization'?

What is market capitalization You may have heard of companies being categorized based on their "market cap." But what exactly does this mean? Market capitalization, or market cap, is the total market value of a company's outstanding shares. Since stock price sometimes misrepresents a company's actual worth, the market cap is useful because it allows investors to gauge a company's size and weigh the potential risk and returns.

Market capitalization is used to divide the stock market into three categories:
• Small cap are smaller companies that have a market cap of less than $1 billion. These companies have a lot of potential for growth and profitability, but they are riskier because they are more likely to default when there's a downturn in the market.
• Mid cap companies have a market capitalization of between $1 billion to $5 billion. These companies carry less risk than small cap, but they do not have the same potential for growth.
• Large cap companies have a market cap of $5 billion or more. These companies have the least amount of risk because their financial resources allow them to survive a market downturn, but they have less room to grow so returns may not be as high.

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