Market capitalisation

Market capitalisation is share price multiplied by the number of shares outstanding. That is the whole calculation.

What it is not

• It is not what the company is worth. It is what the market is currently pricing it at, which is an opinion expressed in dollars.
• It is not what the company would cost to buy. An acquirer also assumes the company's debt and receives its cash. That combined figure is called enterprise value.
• It is not how much money the company has. A common confusion. Market cap is a valuation, not a bank balance.
• It is not comparable across companies with different capital structures. A company financed heavily with debt will have a smaller market cap for the same underlying business.

Why size categories exist

Investors group companies by market cap because size correlates with behaviour: how easily shares trade, how much analyst coverage exists, how the business is financed, and how it responds to interest rates.

The Russell 2000 index, for example, tracks smaller US companies — and behaves differently from the S&P 500 partly because smaller companies borrow more often at floating rates and earn more of their revenue domestically.

The useful habit

Whenever you see a large number attached to a company, ask which number it is. Revenue, market cap, enterprise value and total assets are four completely different quantities, and headlines mix them constantly.