This article will help you understand how to calculate market cap and explain how to use the MarketBeat market cap calculator to calculate the market cap of a stock on a real-time basis.
What is Market Cap?
Market cap measures the total equity value of a company. The two elements that go into calculating a stock’s market cap include the stock price and the number of outstanding shares.
Stock price requires little explanation. It’s the price at which a stock trades at a given moment. This changes hundreds of times during a trading session.
Outstanding shares refer to the number of shares of stock that a company has issued and which public and institutional investors can buy and sell. Sometimes referred to as “shares in float,” they are different from the number of authorized shares a company may issue.
Outstanding shares are the shares that you purchase through a brokerage or directly from the company, also called “publicly traded shares.” However, that definition is only partially correct.
Every publicly traded company must report the number of outstanding shares on its balance sheet. You can also find this information through investor relations on a company’s website. This information also goes on financial news websites where stock quotes are displayed. A company must also report the number of outstanding shares in its quarterly filings with the Securities and Exchange Commission (SEC).
Investors can use market capitalization as one measurement to assess the value of a company in the stock market. Many inexperienced investors presume that the price per share shows the value of one company’s stock compared to another.
For example, if Costco (NASDAQ:COST) trades at $488 per share, investors may perceive that it is more valuable than Apple Inc. (NASDAQ:AAPL), which trades at $146 per share. Both may be quality stocks to own, but institutional investors would value Apple at approximately 10 times that of Costco.
The reason for that has to do with market capitalization. As of December 5, 2022, Costco has a market cap of approximately $215 billion. In contrast, Apple has a market cap of approximately $2.33 trillion. That’s why institutional investors would say that Apple is a more valuable stock.
Market cap is only one metric to use to evaluate a stock but is viewed as the easiest, most widely used method to value a company.
The most common market caps include the following:
- Small-cap companies: Small-cap companies refer to those that have a market cap of less than $2 billion.
- Mid-cap stocks: Mid-cap companies refer to those that have a market cap between $2 billion and $10 billion.
- Large-cap stocks: Large-cap companies refer to those with a market cap above $10 billion.
More precise market capitalization categories have been added, including micro-cap stocks, which include the smallest of the small-cap stocks and ultra-cap stocks, which include the largest of the large-cap stocks.
These categories can help you understand the growth prospects and level of risk involved in the stock. For example, small-cap stocks tend to be more volatile than large-cap stocks because this category of stocks frequently includes not-yet-profitable companies, and in some cases, include those in the pre-revenue stage. However, this means that small-cap stocks can frequently grow faster than large-cap stocks.
By contrast, large-cap stocks tend to be mature, stable companies. Many, though not all, generate relatively consistent revenue and earnings no matter what happens in the broader economy. Some large-cap stocks pay dividends.
In a diversified portfolio, an investor aims to own stocks with different market caps. In general, investors should own all three types of company stock — small-, mid- and large-cap. At any given moment, one or more of these categories may outperform another. Diversifying your portfolio to include all types can help you find the right mix of growth and stability.
You can buy shares of stock in individual companies. To do this, you need a way to measure one company’s returns against similar companies. You can use the S&P 500, a large-cap index that measures one stock against another. For mid-caps, you may find the S&P MidCap 400 Index useful. For small-caps, you can tap into the S&P SmallCap 600 or Russell 2000 indices. Remember that if the index is weighted by market cap, stocks with a higher market cap will have more weight on the index.
Many mutual fund companies cater to investors by featuring funds that specifically invest in stocks with the same market capitalization, helping you diversify further. You may like the idea of knowing they have diversification without having to take the time to research the stocks themselves. When selecting individual stocks, make sure you divide your investment among different-sized companies.
Market cap does not factor in any debt on a company’s balance sheet and it doesn’t take into account factors such as stock splits and dividends, which can affect both elements of the market cap calculation.
If you want to assess the long-term potential for a stock as part of your retirement portfolio, look at several other factors such as the role of compound interest in the growth of your portfolio. MarketBeat has a compound interest calculator for calculating retirement savings.
Market Capitalization Formula
To determine a company’s market capitalization (or market cap), you will multiply the price of a single share by the number of total shares outstanding (the number of shares available to be publicly traded). The market cap calculation looks like this:
Market cap ＝ Current share price x Outstanding shares
In many cases, you can easily find a company’s market cap without having to do the calculation. However, for illustrative purposes, let’s look at two examples using the formula:
Company A has 10,000,000 outstanding shares and currently sells stock at $50 per share. The formula looks like this:
Market cap ＝ 50 x 10,000,000
Market cap = $500 million
Company B has 5,000,000 outstanding shares and currently trades at $20 per share. The formula looks like this:
Market cap ＝ 20 x 5,000,000
Market cap = $100 million
How to Calculate Market Capitalization
As we showed above, the formula for calculating market capitalization is:
Market Cap ＝ Current share price x Outstanding shares
In many cases, you can find a company’s market cap on a financial website without having to do the calculation. In fact, MarketBeat provides the market cap for all the publicly traded stocks in their database. This, however, doesn’t take into account that market cap constantly changes.
That’s because a company’s stock price changes multiple times within a day. The stock price is the variable most likely to change market cap on a day-to-day basis. For example, when Apple’s stock price dropped to around $131 in June 2022, the stock’s market cap briefly dropped below the $2 trillion threshold.
Also, while the number of outstanding shares changes less frequently, it can change for a number of reasons. For example, a company can increase the number of outstanding shares through equity financing, when employees exercise stock options and when companies issue stock splits.
If you don’t have access to an online market value calculator, here’s how to find and calculate a stock’s market cap at any point in time.
Step 1: Find the company’s current stock price.
The company’s current stock price is the price of a share of common stock at a moment in time. If you wait until after the market closes and after-hours trading is over, you can get a stock price that won’t change until premarket trading begins. However, if you want to take a long position in a stock, you shouldn’t be too concerned about a stock’s current price.
Step 2: Identify the number of outstanding shares.
Most financial sites, including MarketBeat, tell you the number of outstanding shares available. A company’s investors relations page can also offer another good source of finding this information.
Step 3: Multiply the two numbers together.
Finally, use the formula:
Market Cap ＝ Current share price x Outstanding shares
It’s really that simple!
How to Use the Market Cap Calculator
The MarketBeat market cap calculator is a tool that investors and traders can use to find the current market value of a stock. The market cap calculator is one example of a stock market calculator tool.
MarketBeat publishes a series of calculators such as the MarketBeat retirement calculator, the MarketBeat stock average calculator, MarketBeat stock profit calculator and the MarketBeat options profit calculator, creating a one-stop site for investors to research stocks.
The MarketBeat market capitalization calculator is intuitive, but here are step-by-step instructions:
Step 1: Enter the ticker symbol directly.
If you know the ticker symbol of the stock you’re looking for, just enter that into the “Choose a Stock to Populate Sell Price” field. MarketBeat will populate the tool from its search engine to give you the current market cap for that stock.
Step 2: Enter the share price.
As we noted above, this is simply the current price at which the stock trades. You don’t need to think about it beyond that. However, note that this price will change frequently during the trading day.
Step 3: Enter the number of outstanding shares.
If you’re on the MarketBeat site, you can find this in the right-hand column on the stock profile page.
Use a Market Cap Calculator as a Useful Investing Tool
Market capitalization is a commonly used metric that investors use to determine the value of a company’s stock and useful for understanding how a company may fit into an investor’s overall portfolio. It can also help you assess the risk of owning a particular stock.
On the downside, it doesn’t factor in a company’s debt and does not account for factors such as stock splits and dividends that can affect the two elements of the market cap calculation: stock price and number of outstanding shares.
Let’s take a look at a few frequently asked questions about market cap.
What is the market cap in crypto?
Investing in cryptocurrency is not like investing in stocks. One of the limitations of getting started in cryptocurrency involves a lack of available metrics to evaluate the value of a particular coin or token. To get around this, cryptocurrency has adopted metrics similar to those of stocks, including market capitalization.
However, calculating market cap in crypto is different from stocks. In this case, you calculate market cap as the price of a coin multiplied by the number of available coins.
What is a fully diluted market cap?
A stock’s fully diluted market cap accounts for the total number of common shares currently outstanding plus those claimed via convertible bonds or through the exercising of stock options. Companies use the number of fully diluted shares in calculating earnings per share (EPS).
In cryptocurrency, a fully diluted market cap occurs when all the coins or tokens that will ever be mined are available.
Is a high market cap good or bad?
The significance of a high market cap depends on your investment objective. If you’re looking for secure investments with steady growth similar to the broader market, you’ll likely want to go for large-cap stocks. Conversely, if looking for stocks that have the potential to generate market-beating returns, small-cap stocks may be a better choice. However, investing in small-cap stocks also comes with the possibility for outsized losses if the market corrects.