What is the difference between market cap and enterprise value?

Market capitalization is the total value of a company's outstanding shares (stock price x shares outstanding), representing its equity value. Enterprise Value (EV) is a more comprehensive measure that includes market cap, plus total debt, minus cash and cash equivalents, providing a better picture of a company's total economic value.

Why do some companies have a high market cap but low revenue?

A high market cap with low current revenue often indicates that investors have high expectations for the company's future growth and profitability. This is common in high-growth industries like biotechnology or early-stage technology, where significant investment is made upfront with the anticipation of substantial future returns.

Can a company's market cap change overnight?

Yes, a company's market cap can change significantly overnight due to dramatic fluctuations in its stock price. This can be triggered by major news events, such as unexpected earnings reports, product announcements, regulatory decisions, or significant geopolitical events that impact investor sentiment.

Is it better to invest in large-cap or small-cap stocks?

Neither is inherently "better"; it depends on your investment goals and risk tolerance. Large-cap stocks generally offer more stability and consistent, albeit slower, growth. Small-cap stocks offer higher growth potential but come with significantly higher volatility and risk. A diversified portfolio often includes a mix of both.

How do stock splits affect market capitalization?

Stock splits do not affect a company's total market capitalization. A stock split increases the number of outstanding shares while proportionally decreasing the price per share, so the total value remains the same. For example, a 2-for-1 split doubles the shares and halves the price, keeping the market cap constant.

What is a "mega-cap" company?

While not a universally defined term, "mega-cap" typically refers to companies with market capitalizations exceeding $200 billion, or sometimes even higher, such as $500 billion or $1 trillion. These are the largest and most dominant companies in the global economy, often leading their respective industries.

How does market cap relate to index funds?

Many index funds are constructed based on market capitalization. For example, the S&P 500 is a market-cap-weighted index, meaning companies with larger market caps have a greater influence on the index's performance. Index funds tracking these indices will invest proportionally more in larger-cap companies.

Market Capitalization Guide: Understanding Market Cap | One…