What is market capitalization?
Market capitalization is the total present value of all shares outstanding in the market. It can also be understood that the market capitalization of a business is determined by the total amount of money that must be spent to buy back that business at the market price at the time of purchase. It could be calculated by multiplying a company's outstanding shares by its current market price.
E.g: Assuming company A has 1,000,000 shares, on November 5 the company's stock price is $12/share and its capitalization is $12,000,000.
However, the market capitalization of a business can fluctuate up and down from time to time, due to its dependence on stock prices and stock prices can be affected by many factors such as supply and demand, interest rates, inflation, prospects, levels of risk, and even crowd psychology, etc.
Why do we care?
For many investors, market capital is the primary determinant of concern, for reasons of liquidity, and risk. It may represent the industry position, growth potential or market evaluation of this business and when needed, investors can divest quickly and without spending too much money when making divestments. The higher the capitalization, the lower the risk tends to be, and vice versa. Therefore, investors could propose measures to diversify their portfolios optimally and bring high returns, within acceptable risk levels.
Classification
Large capitalization (large cap) companies are usually long established. They are typically very large dynamic companies, accompanied by a high market share price along with a large number of shares. When investing in these companies, it usually does not bring great returns in the short term, but in the long run, the companies often have a consistent increase in stock price. Additionally, investors are often assured of dividend payment.
Mid capitalization (mid cap) are usually businesses with the number of stocks and the market price is not as high as that of the largecap group and often have medium-sized operations. These companies are often very attractive to investors because of their growth potential as they are often in the process of expansion and are expected to experience rapid growth. However, the risk that it can bring is also very large compared to investing in large companies
Small capitalization (small cap) are companies with low-priced shares or a small number of shares. This said, companies with smallcap are usually companies with small capital size. Investing in these companies are considered riskier because of their size, the markets they serve (very competitive perharp), they are also more sensitive to the economy. As a result, small-cap companies are riskier, and their stock prices are also more prone to ups and downs.
Additionally, we also have other classifications like mega cap (>$200 billion), micro cap ($50 million - $300 million) and nano cap (<$50 million).
Sources:
Vốn hóa là gì? Ý nghĩa vốn hóa thị trường CỤ THỂ. CophieuX. https://cophieux.com/chien-luoc-dau-tu-theo-von-hoa/
Vốn hóa là gì? Những gì Nhà đầu tư cần biết về Vốn hóa Thị trường. Yuanta. https://ysedu.yuanta.com.vn/lesson/blog/von-hoa-la-gi-y-nghia-von-hoa-thi-truong-nhung-dieu-co-ban-nha-dau-tu-can-biet-ve-von-hoa-thi-truong/
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