What is a market cap & how do you calculate it?

Shorthand for "market capitalization," market cap is one way an investor can evaluate how much a company is worth. Market cap refers to the total value of a publicly traded company's shares. To determine a company's market cap, simply multiply the share price by the number of shares outstanding. Here's Costco Wholesale ( COST 0.74%) as an example.

What does a high market cap mean?

What Does a High Market Cap Tell You? A high market cap signifies that the company has a larger presence in the market. Larger companies may have less growth potential compares to start-up firms, but larger companies may be able to secure financing for cheaper, have a more consistent stream of revenue, and capitalize on brand recognition.

Is a company's market cap underperforming?

Market cap is often used as a baseline for analysis as all other financial metrics must be viewed through this lens. For example, a company could have had twice as much revenue as any other company in the industry. However, if the company's market cap is four times as large, the argument could be made that company is underperforming.

Should you look at the market cap of a company?

Looking solely at the market cap will give investors an idea of how much a company is worth, but it fails to account for debt and locked-in shares held by executives. Therefore, it is better to view a company’s market cap as a complement to other metrics. Only once all the metrics are accounted for will the market cap begin to tell a better story.