<p>Market capitalisation (often shortened to market cap) is the total market value of a company’s outstanding shares of stock. It is calculated by multiplying the current share price by the total number of shares issued and held by investors. This figure provides a quick snapshot of how the market values a firm and is widely used to compare companies within the same industry or across sectors.</p>

<h2>How It Works</h2>
<p>To determine market capitalisation, analysts take the latest closing price of a share and multiply it by the number of shares outstanding.</p>
<ul>
<li>Share price is obtained from the exchange where the stock trades.</li>
<li>Outstanding shares include all shares held by institutional investors, retail investors, and company insiders, but exclude treasury shares.</li>
<li>The result is expressed in the same currency as the share price, such as US dollars or euros.</li>
</ul>
<p>Market cap fluctuates throughout the trading day as the share price changes. Companies are often grouped into categories based on their market cap: large‑cap (typically over $10 billion), mid‑cap ($2 billion to $10 billion), and small‑cap (under $2 billion). These classifications help investors gauge risk and growth potential.</p>

<h2>Why It Matters</h2>
<p>Market capitalisation is a fundamental metric for investors because it reflects the size and relative stability of a company. Large‑cap firms tend to be more established and less volatile, while small‑cap stocks may offer higher growth potential but carry greater risk.</p>
<p>For example, an investor building a diversified portfolio might allocate 60 % of equity holdings to large‑cap stocks for stability, 30 % to mid‑cap for balanced growth, and 10 % to small‑cap for opportunistic upside. Index providers such as the S&P 500 use market‑cap weighting, meaning larger companies have a proportionally greater influence on the index’s performance.</p>