Market Capitalization: Calculation and Categories

Mid Cap – $2 – $10 billion. Many growth companies are in this category. Possible higher returns but generally greater risk than larger companies.

Small Cap – $300 million – $ 2 billion. Many small caps are younger companies with high growth potential and high risk.

Micro Cap – $50 million – $300 million. Smaller companies with little wall street coverage. These stocks require tremendous due diligence before investing.

Market Capitalization Relationship to Enterprise Value

Market capitalization is the total value of the company’s equity. However, if you wanted to purchase a whole company you would need to make adjustments for their debt and cash balances.

Therefore if you want to calculate the total value of a company (i.e. determine takeover value) you would want to make those adjustments. Enterprise value takes market capitalization one step further by adding total debt and subtracting cash.

This post was republished with permission from Arbor Investment Planner