The market cap, also known as the market capitalization, represents the aggregate monetary value of the company’s stocks issued. It is obtained by multiplying stock price by the number of outstanding stocks. One can take for instance a firm having twenty million shares valued each at fifty dollars which gives one billion market cap.

It gives investors the opportunity to appreciate the comparison of one company with other. Market cap considers the price of the firm’s shares in the open market and the perception that the market has about the company’s worth based on such information.

Large-Cap Comapny: A large-cap company is usually an organization whose market value is over $10 billion. These big companies are usually associated with high product or service quality, consistent dividend payout, and sustained growth. Their usual position in established industries is one where they are the dominant player with a national consumer recognition of their name. Therefore, it may be prudent to view investments in large-cap stocks as more conservative than those in small-cap or mid-cap stocks, where there will be relatively low risk but lower growth potential.

Mid-Cap Company: Mid-cap refers to any business with a market valuation between $2 and $10 billion dollars. These are mostly well-established companies in fast growing firms. These medium sized companies could possibly be expanding market share and strengthening their competitive position. The companies reach the last leg of growth which usually determines their ability to fulfill their maximum potential.

Small-Cap Companies: Companies are considered small-cap if their market cap is between $300 million and $2 billion. Normally, they are relatively young and specialized for niche markets or recently developed ones. Small caps, the riskiest among the three types, are viewed as highly ambitious. Small companies are very vulnerable due to minimal operating resources that, under business or economic slump, they might be unable to withstand. They can also face risks associated with high levels of competition and unpredictability in emerging, untested markets. However, for long-term investors willing to bear with short-term swings in price volatility, small-cap stocks may present opportunities of substantial growth.