How is market capitalization defined?

Market capitalization is defined as the total value of a company's outstanding shares. This figure is crucial in financial management as it provides a quick way to gauge a company's size and the total market value that investors place on it. To calculate market capitalization, you multiply the current share price by the total number of outstanding shares. This metric is commonly used to categorize companies into different sectors, such as small-cap, mid-cap, and large-cap, which can help investors make informed decisions about their investments.

Unlike other financial measures such as the value of fixed assets, total revenues, or annual profit, market capitalization reflects not just the company's operational performance but also investor sentiment and expectations about future growth. Thus, it becomes a key indicator of a company's financial health and its standing in the marketplace.