Definition: Market capitalization is the total value of all the shares of stock the company has issued. A company that has 1 million shares that are selling for $10 each would have a market capitalization of $10 million. This means you could buy that company for $10 million, if you had the spare cash.
Other ways of valuing a company is the present value of its future cash flow, or income. Some companies are also valued by the total resale price of all its assets. If a company's capitalization is less than the value of its income or its assets, it becomes a target to be taken over. During the Internet bull market in 1999, many companies' capitalization values were worth far more than their income or asset value. This led to the recession of 2001.
Market capitalization can also refer to the total value of a stock exchange. For example, the market cap of the NASDAQ would equal the market cap of all the companies traded on the NASDAQ combined.
Also Known As: Market Cap
Examples:
Some large U.S. corporations have a market cap that is larger than the total GDP of many small countries.
