Market cap, or market capitalization, is one of the most important indices used to gauge how large companies are valued. It is a way to compare the size of different companies and determine which ones might be more likely to perform well over time. It can also be used to evaluate a company’s potential for mergers and acquisitions.

It is not an indicator of the value of the entire company itself, as it does not take into account other aspects of the business such as debt or cash on the balance sheet. In order to compute the enterprise value, you need to look at the sum of a company’s equity and its debt.

A company’s market cap is calculated by dividing the total number of its outstanding shares with their current price. For example, if a company has 10 million shares of stock and they are trading at $20 each, then the company’s market cap is $200 million.

The value of a company can change in the short-term due to significant changes in the stock price or when a company issues new shares. This can dilute the total number of shares on the market, which can negatively affect the market cap. The most common reason for this is when a company exercises stock options, warrants or debt convertible into shares.

Large-cap stocks have a higher risk and reward profile than mid-cap and small-cap companies. They may have greater liquidity and financial reserves, so they can absorb losses more easily. Additionally, they may have lower price volatility than smaller stocks.

They are also known for providing investors with a good return on their investment in the long run. They can provide a good investment opportunity for investors looking for stable growth and a high dividend.

Companies with a market capitalization of $10 billion or more are considered to be large-caps. These companies are typically well-established businesses with a solid reputation and the promise of continued growth.

Mid-cap stocks have a market cap between $2 billion and $10 billion. These companies offer investors a balanced risk-return ratio. They can be more stable in terms of performance or growth than the large-cap stocks and are generally expected to have a better return on investment.

These are companies that have been in the industry for a long time and show a steady growth in their profits. They are also considered to be a safer option for investors, since they have been established in their industry and will not suffer as much from volatility.

A company with a market cap of $250 million to $2 billion is classified as a small-cap stock. These stocks are more volatile and less stable than the other two types of companies.

They are a great option for investors who want to take advantage of the growth of the economy but do not want to be as risky with their money. These companies often have a limited history of sales or earnings, so they are more susceptible to economic fluctuations.