If you invest in a company on the basis of long-term objectives, you should know the link between the company’s size, the pay-off you could receive, and the investment risk. If you know this, you can balance your portfolio of stocks in a better way so that it can have various market capitalizations.
Market cap, also called equity value, is the overall value of an organization’s shares. The discussion here is concerning the shares which a company sells among commoners, not things like preferred stock. When an organization sells its shares of stock at $40 per share and it has 30 million shares that sell among common people, its market cap is $1200 million.
Why is the concept of market cap so significant to both analysts and investors alike? For the latter parties, it can be a sign of the company’s size. With this information, investors can then compare it to another company’s size. Market cap can indicate what a given market makes of the future potential of that organization. This is because it is one of the measures of the amount of money which common people are ready to pay to get that company’s stock.
These are companies with a market capitalization of over $10 billion. Also described as big-caps, these companies are traditionally known to make quality products and services. They pay dividends consistently to shareholders and have steady growth. They often dominate the industry they belong to. Consumers tend to easily recognize the names of top companies by market cap.
For this reason, big-cap stocks are often deemed rather conservative investments as compared to the small- and mid-cap ones, and these do not pose just as much investment risk. The potential for growth is much less aggressive, though.
These companies usually have an equity value of $2 billion to $10 billion. They are established and operate in sectors that presently experience or poised to face quick growth soon. How a company fares at this phase can tell whether they can live up to their potential.
Often, stocks of these companies lie between the big-capitalization and small-capitalization stocks’ risk-return profile.
These companies usually have an equity value of $300 million to $2 billion. They are your average young companies that are growing at an established sector’s niche market or emerging segment. These are more aggressive than both big- and mid-cap companies regarding growth prospects, and they are riskier than the others. They have rather limited resources, so they are much more vulnerable to economic downturns.
They are prone to both the uncertainties and competition that often plague emerging sectors at their starting phases.