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What is a market cap?

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Market cap, which is short for market capitalization, is the value of a public corporation's outstanding shares of stock. According to the U.S. Securities and Exchange Commission, it is equal to the price of a single share of a corporation's stock at a particular point in time multiplied by the number of shares that are outstanding.

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Calculating a company's market capitalization, also known as market value, enables investors and financial analysts to determine the size of a corporation relative to the marketplace, according to Morningstar, a prominent investment research firm. Market capitalization can be viewed as an expression of the public's confidence in a corporation because the calculation reflects the public's investment pattern. Establishing a company's market capitalization allows financial brokers to group similarly sized corporations into investment vehicles with labels such as large-cap, mid-cap and small-cap.

According to Forbes, market capitalization is an important financial indicator for two reasons. First, it helps investors establish a value comparison between companies with different stock prices. Second, it determines a company's size in relation to its peers. A corporation's market cap changes as its stock price fluctuates, so financial publishers, such as Value Line, Yahoo Finance and Bloomberg, calculate market capitalization for public companies on a daily basis.

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