Definition

Market cap identifies a company's size by multiplying its shares outstanding by the current market price.  Market Cap is generally referenced when stating the total value of a company.  For example, companies like Apple, Google, Microsoft and Amazon are valued at or above $1 trillion.

Calculation

Market Cap = Shares Outstanding x Current Share Price

Why is it important?

Market cap values help easily identify what cap type a company falls under. Large- cap ($10b+), mid-cap ($2-$10b), and small-cap ($300m-$2b) are examples of the most recognized market cap types.

Large-cap companies are companies that have a market cap over $10 billion. These companies have been around for awhile and are considered the big dogs in their respective industries.  Investors tend to use large cap stocks as a long term play looking for a gradual increase in share price and/or consistent dividend payments

Mid-cap companies have a market cap of $2-$10 billion. Companies that fall under the mid-cap category are companies that are not as established and can carry more risk than that of their large-cap counterparts. With that said, mid-cap companies may have higher growth potential.

Lastly, small-cap stocks have a market cap between $300 million to $2 billion. These companies tend to be higher risk but may have great growth prospects.