Definition Market Cap. Description.
Market Cap is a business term that refers to the aggregate
value of a firm's outstanding common shares. In essence, market capitalization
reflects the total value of a firm's equity currently available on the market.
This measure differs from equity value to the extent that a firm has outstanding
stock options or other securities convertible to common shares. Market capitalization
is calculated by multiplying the number of outstanding common shares of the
firm and the current price of those shares .
Although frequently calculated and stated as a measure of
the size of a company it is important to note that it is not necessarily a
realistic estimate of the value of the business as an entity. It may fluctuate
widely from day to day and, because it is based on trading in a small proportion
of the company’s shares, does not necessarily represent what a purchaser of
the entire company would have to pay for it. Market capitalization may also
increase or decrease for reasons unrelated to performance such as acquisitions,
divestitures and stock repurchases.
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 Market Cap Calculation Example
A firm reports a book value of shareholders' equity of $850 million with 25 million of shares outstanding. Those shares are traded at $45 each in the ...
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Compare also: Market Value Added
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