What Are Market Cap Stocks?

This article defines the term "market capitalization" and how it is computed.

Defining Market Capitalization

Market capitalization is the total cost of common stock available in stock markets at the current market price of the stock.

Computing Market Capitalization

Market Cap = Total Number of Common Shares Outstanding * Market Price per Share

Relevance of Market Capitalization

Market capitalization is the most common method used to determine the size of a corporation. For example, rankings of companies often use market capitalization as a major, if not sole, criterion.

Ramifications of Changes in a Corporation's Market Capitalization

Many mutual funds and exchange traded funds include requirements regarding market capitalization levels in their investing decisions. For example, a fund that only invests in stocks of companies in the S&P 500 will require a very large market capitalization. Similarly, a fund that invests in small companies might sell shares in a company whose market capitalization has grown too large.

Impact of a Stock Repurchase Program on Market Capitalization

A stock repurchase program should not have a direct impact on market capitalization, even though it reduces the total number of shares available for investors to purchase. As shares are purchased by the company, the price of the shares that continue to be available for sale in the market increases such that the total market capitalization remains unchanged (assuming all else remains constant).