What is Market Capitalisation?

Market capitalisation, or market cap, is the total market value of a company's outstanding shares, calculated as share price times shares outstanding; the standard measure of a company's size in equity markets.

Companies are conventionally classified by market cap: mega-cap above USD 200bn (Apple, Microsoft, Saudi Aramco, Nestlé), large-cap USD 10–200bn (Roche, ASML, LVMH), mid-cap USD 2–10bn, small-cap USD 300m–2bn, and micro-cap below USD 300m. The split matters because risk, liquidity, analyst coverage and historical return profile differ markedly across bands.

Index funds weight by market cap by default — Apple is roughly 6% of the S&P 500, Nestlé about 18% of the SPI. This means an MSCI World ETF holds far more of a few mega-caps than of thousands of small-caps; that is a feature, not a bug, because it tracks the actual market.

Small-cap stocks have historically delivered a premium of 1–2 percentage points per year over large-caps over very long horizons, attributed to higher risk and lower liquidity. The premium is highly time-varying; in the 2010s US large-cap tech dominated, in the 2000s small-cap value led. Most retail portfolios allocate 10–20% to a small-cap fund alongside the broad market.

Formula

Market Cap = Share price × Total shares outstanding

Example

Nestlé share price CHF 95 × 2.65 billion shares outstanding = CHF 252 billion market cap, making it Switzerland's largest listed company. In the SPI it weighs about 18%, meaning a CHF 10,000 SPI ETF holding contains roughly CHF 1,800 of Nestlé exposure.

Related terms

Stock (Share / Equity)

A stock is a unit of ownership in a publicly listed company that entitles the holder to a proportional claim on the firm's assets and future profits, traded on exchanges like SIX, Xetra, Euronext or NYSE.

P/E Ratio (Price-to-Earnings)

The price-to-earnings ratio divides a stock's market price by its earnings per share, expressing how many years of current profits an investor is paying for one share — the most-cited valuation metric in equity analysis.

IPO (Initial Public Offering)

An IPO is the first time a private company sells shares to the public on a stock exchange, raising capital, providing liquidity to early investors and subjecting itself to listing-disclosure rules going forward.

Index Fund

An index fund is a mutual fund or ETF designed to track the performance of a specific market index (S&P 500, SPI, MSCI World) by holding the same constituents in the same weightings, at a fraction of the cost of an actively managed fund.

Frequently asked questions

Is market cap the same as enterprise value?+

No — enterprise value adds net debt; for a leveraged company EV is much larger than market cap.

Should I prefer large or small caps?+

Large caps for stability and liquidity, small caps for higher expected return and volatility; diversified investors hold both.

Do indexes weight equally or by market cap?+

Most weight by market cap; equal-weight versions exist (e.g. S&P 500 Equal Weight) and behave differently.