What Is Market Cap? | How Do Stocks Work?

Market cap (short for market capitalization) is the total market value of a company’s shares: the current share price multiplied by the number of shares outstanding. It is the most common way to describe how big a public company is, which is why you see labels like “large-cap” and “small-cap.”

How it’s calculated

Market cap = share price x shares outstanding

Maple Widgets Inc. (a hypothetical company) has 80 million shares outstanding, and the last trade was at $25.

80,000,000 x $25 = $2 billion market cap

If the price rises to $30, the market cap becomes $2.4 billion, even though nothing about the company’s operations changed that day. Market cap moves every time the price does. For why prices move, see how stock prices are set.

Float-adjusted market cap

Not every share is available to trade. Founders, governments, or parent companies may hold blocks they rarely sell. Float-adjusted market cap counts only the shares available to the public. If insiders hold 30% of Maple Widgets, its float is 56 million shares and its float-adjusted market cap is $1.4 billion.

Index providers use float-adjusted figures. S&P Dow Jones Indices, for example, weights the S&P 500 by float-adjusted market cap and, under the guideline set in July 2025, looks for companies with a total market cap of at least US$22.7 billion before adding them. Thresholds like this are reviewed regularly. See what is a stock index for the weighting arithmetic.

Size labels

“Large-cap,” “mid-cap,” and “small-cap” have no legal definition. Each index provider and fund company draws its own lines, and those lines move as markets grow. Treat the labels as rough descriptions, not categories with rules.

What market cap does not tell you

It is not the company’s value in a sale. A buyer also takes on debt and gets the cash. Enterprise value adds debt and subtracts cash to capture that.
A low share price is not cheap. A $5 stock with 2 billion shares is a $10 billion company. A $500 stock with 10 million shares is a $5 billion company.
Splits don’t change it. A 2-for-1 split doubles the share count and halves the price, leaving market cap the same, while buybacks reduce the share count. See stock splits and buybacks.
It is not a verdict. Market cap reflects what buyers paid in the latest trade, not whether that price is reasonable. That is the job of valuation.