Valuation · updated October 21, 2026
What is market capitalization and how is it calculated
Market capitalization is what all of a company's shares are worth on the stock market, at today's price. It tells you how big the company is in investors' eyes, not what its buildings or cash are worth.
Market cap formula
- Share price
- The latest price on the exchange.
- Number of shares
- All issued shares held by investors.
Worked example
A company has 500 million shares and one share costs $40.
If the price climbs to $44, market cap rises to $22 billion without the company doing anything differently.
How to read market cap
Size does not tell you whether a stock is cheap or expensive. For that, compare market cap with profit (P/E) or sales (P/S).
When market cap can fool you
Several share classes: for some companies (Alphabet, Berkshire) you need to add up all classes, or market cap comes out too small. Share price alone means nothing: a $1,000 stock can belong to a smaller company than a $10 one.
Related terms
Questions about market cap
Is market cap the same as the company's value?
No. Market cap is the value of the shares. The value of the whole business (EV) adds debt and subtracts cash.
Why does it change every day?
Because the share price changes. The number of shares stays almost the same.
These explanations are for information only. They are not a recommendation to buy or sell.
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