What does "market capitalization" measure?

Market capitalization refers to the total market value of a company's outstanding shares of stock. This figure is calculated by multiplying the current share price by the total number of outstanding shares. As a key indicator of a company's size and investment value, market capitalization reflects the market's perception of a company's future growth potential and stability.

For example, if a company has 10 million shares outstanding, and each share is priced at $50, its market capitalization would be $500 million. Investors often use market capitalization to compare the relative size of companies within the same industry or to assess the overall weight of a stock in a portfolio or market index.

This measure is particularly significant because it provides insight not only into the company's scale but also acts as a benchmark for assessing whether a stock is overvalued or undervalued in comparison to its peers.