How is market capitalization calculated?

Market capitalization is a key financial metric that provides insight into the value of a company as determined by the equity market. It is calculated specifically by multiplying the total number of shares outstanding by the current market price per share. This method gives investors a straightforward figure that reflects the company's total value in the eyes of the stock market.

The number of shares outstanding represents all the shares issued by the company that are currently held by shareholders, while the market price per share indicates the current trading price of one share of the company's stock in the market. By multiplying these two figures, you derive the total market value of the company, which helps investors compare the size and performance of different firms.

This approach is widely used as it provides a clear snapshot of the company's standing compared to others within its industry or the broader market. It also plays a crucial role in investment decision-making, as it affects how investments are evaluated, particularly in terms of regard to growth potential and risk assessment.