You can find further explanations on economy and finance in our Yahoo U-side.
Companies come in all shapes and sizes.
Market capitalization is one way of looking at the relative size of a company. It is generally calculated as the share price multiplied by the total number of shares outstanding.
For example, if a company’s stock is trading at $ 20 per share and there are 1,000,000 shares outstanding, that company’s market capitalization is $ 20 million.
In general, a small company is defined as one with a market capitalization between $ 300 million and $ 2 billion. A medium-sized company is defined as one between $ 2 billion and $ 10 billion. And a large company is defined as one with a market capitalization of more than $ 20 billion.
Micro-cap companies would define those under $ 300 million, and mega-cap companies would be those with market capitalization over $ 200 billion.
There is no “official” measure of distinguishing a “big” company from a “small”, which means the definitions above may vary depending on who you ask.
What is the mix of large / small companies in the S&P 500?
From spring 2021 the largest cap share in the S&P 500 (^ GSPC) by weighting was Apple (AAPL) at over $ 2 trillion. The smallest capitalization stock was a Texas-based oil refinery called HollyFrontier Corporation (HFC) with a market capitalization of just under $ 6 billion.
That said, there are no small-cap companies in the S&P 500.
The Russell US indices provide more breadth across the universe of publicly traded companies. The Russell 3000 (^ RUA) comprises the 3,000 largest stocks traded in the United States. This index is then split into a Russell 1000 Index (with the 1,000 largest companies) and the Russell 2000 Index (with the remaining 2,000 companies).
The Russell 2000 Index (^ RUT) therefore does not include mega- or large-cap companies, but many small-cap companies.
Are there other measures for company size?
Yes, companies can be compared by revenue or profit.
However, market capitalization serves as a useful metric because, as the name suggests, it measures a company’s market value based on how shareholders interact with its stock.
Because stock prices fluctuate, market capitalization is a real-time measure of company value based not only on its performance – but also on expectations of future performance.
That means that market capitalization involves a little bit of speculation.
An alternative way to look at a company’s value without the noise of market prices is “book value,” which is the net worth of a company based on its balance sheet (calculated as its assets minus its liabilities).