Lesson 3 of 5 · 5 min read
Market capitalization
A high share price doesn't mean 'expensive' or 'big'. Market capitalization tells you how big a company really is.
The formula
Market capitalization = share price × number of shares outstanding. A €10 share with 10 billion shares (€100 bn) is much bigger than a €1,000 share with 1 million shares (€1 bn). So the price alone tells you little.
Large, mid and small cap
Companies are classified by market value: large caps (big, often more stable), mid caps (medium-sized) and small caps (small, often more volatile and with more growth potential but also more risk). Indices like the S&P 500 mainly contain large caps.
Why it matters
Market capitalization helps you compare companies fairly and organize your portfolio by size. It is also the basis for many indices: they often weight companies by market value, so the largest companies count the most.
Remember this
- Market capitalization = share price × number of shares outstanding; the price alone tells you little.
- Companies are called large, mid or small cap based on their market value.
- Small caps are often more volatile: more growth potential but also more risk.
- Many indices weight by market value, so the largest companies count the most.
There is a quiz for this lesson
3 questions that check whether it stuck. They live in the app, because a quiz nobody grades teaches nothing.
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