Beginner · 3 min · Stocks
Understanding market capitalization
Market capitalization is share price multiplied by shares outstanding. It tells you what the market thinks the equity is worth, not what the business is worth.
Why the distinction matters
To value the whole business, add net debt and subtract cash to reach enterprise value. Two companies can share a market capitalization while one is debt-free and the other is heavily leveraged — they are not comparable investments.
The bands used in Canadian coverage
- Large cap: roughly C$10bn and above. Index membership, deep liquidity, broad analyst coverage.
- Mid cap: roughly C$2bn to C$10bn. Often where index inclusion or exclusion moves the price.
- Small cap: roughly C$300m to C$2bn. Thinner trading and larger spreads.
- Micro cap and venture: below C$300m. Frequently pre-revenue, and the price can move materially on modest order flow.
Three common mistakes
- Treating a large market capitalization as evidence of quality. It measures price, not durability.
- Comparing market capitalization across companies with very different share counts instead of comparing per-share economics.
- Ignoring dilution. A rising share count can grow market capitalization while each existing holder owns less.
Terms in this lesson
- Market capitalization
- Share price multiplied by the number of shares outstanding.
- Enterprise value
- Market capitalization plus net debt — what it would cost to buy the whole business, not just its equity.
- Liquidity
- How easily a security can be bought or sold without moving its price. Thin liquidity is the defining risk of venture-listed issuers.
- Shares outstanding
- The total number of shares issued and held by investors. A rising count dilutes existing holders.
Every term links through to the full glossary.