What does the term market capitalization mean?

Market capitalization refers to the total market value of a company's outstanding shares, which is a key indicator of a company's size and financial health. It is calculated by multiplying the current share price by the total number of outstanding shares. This metric is widely used by investors to assess the relative size of companies, compare investment opportunities, and give context to stock prices.

When evaluating a company's stock, market capitalization provides insights into its overall market value, which can influence investment decisions. Larger companies often have greater market capitalizations, indicating stability and less risk compared to smaller companies. Understanding market capitalization helps investors categorize companies into different groups, such as large-cap, mid-cap, or small-cap, each of which may have different risk profiles and growth potentials. This concept is essential for building a diversified investment portfolio and making informed decisions based on market trends.