Market capitalization refers to the value of the issued shares of a company.
Market capitalization = Current share price x Shares issued.
It is important to note that a market cap (sometimes called “market cap”) is not the same as equity, nor is it equal to a company’s debt and equity (although this is sometimes referred to simply as a company’s cap).
Suppose Company XYZ has 10,000,000 shares outstanding and the current share price is $ 9. Based on this information and the above formula, we can calculate that the market capitalization of Company XYZ is 10,000,000 x $ 9 = $ 90 million.
Market capitalization reflects the theoretical cost of purchasing all of a company’s shares, but this is usually not something that the company would acquire in a typical merger transaction. To estimate what it will cost an investor to buy a company directly, a business value calculation is more appropriate.
Thus, the market cap is a better indicator of size than it is worth. That is, market capitalization is not the same as market value, which can usually only be appropriated when a company is actually sold.