Market Capitalization (Market Cap): Definition
Market capitalization equals share price multiplied by shares outstanding. It is a quick way to size a company and is used to compare companies of similar scale.
Exact calculation
- Basic market cap: multiply the current share price by the number of basic shares outstanding.
- Fully diluted market cap: includes the potential effect of in-the-money options, convertible securities, and other dilutive instruments by adding them to the share count (commonly used when companies have significant option pools).
- Float-adjusted market cap: some analyses use free-float shares (excluding restricted/insider-held shares) to compute a float-adjusted market cap that better represents the tradable market.
- Data sources & timing: share counts and prices are time-sensitive. Use the same timestamp for price and share-count when possible (e.g., most recent close price and most recent shares outstanding disclosure).
Practical considerations
- Market cap changes with price — it is a market-implied size, not a static accounting measure.
- Prefer fully diluted market cap when comparing companies with active option programs.
- For index weighting and peer comparisons, confirm whether the dataset uses basic, diluted or float-adjusted market cap.
- Market cap is often used to define market segments (large-, mid-, small-cap) but exact cutoffs vary by provider.