Market capitalization is the stock market value of a company. In other words, how big is the check you need to write in order to buy all the common stock? To calculate a company's market value, multiply the number of shares of stock (published in the most recent company financial data) by the current market price of each share.
For example, a company with 10 million shares outstanding selling for $2.50 per share has a market cap of $25 million. If the shares were selling for $75.00 per share, the market value would be $750 million.
Market cap classification (grouping companies by their cap) is a way to segment the market for analysis. The idea is that companies with similar market caps are similar in other respects as well. There is lots of research on investment performance to confirm this segmentation is valid.
The research shows variations in performance, volatility, and tradability between stocks from different classifications. So market cap classification is worth understanding.
While there is general agreement on the category names (nano cap, micro cap, small cap, mid cap, and large cap), the actual market cap range used to define the categories is not consistent. It varies from analyst to analyst and it varies over time.
Not much we can do to address the analyst to analyst problem, but we can address the variation over time problem.
Rather than using the same fixed market cap regardless of the point in time we are studying, we will always assign market cap percentiles as the category ranges. This allows us to be consistent within the context of the market at any point in time. This is how researchers have addressed the problem.
Later, when screens are developed that consider market cap, we will use the percentile ranking if available in the data.
Throughout this site, we will use the following percentiles to classify stocks by market cap:
This is consistent with the market cap range of the S&P 1500 which includes the S&P 600, S&P 400 and the S&P 500 indices. As of March 2016, the smallest market cap in the S&P 1500 was about US $59M - the lower range of Micro Cap. The Russell 3000 includes Nano Cap stocks.
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Updated Mar 2016