Market Cap Explained | What Does Market Cap Mean?

Market cap is short for Market Capitalization and is equal to the price per share multiplied by the number of shares outstanding. If you only have the price per share and no other information then you won't get far! Market cap represents the "price tag" on the entire company.

Shares outstanding is the number of shares a company's ownership has been divided up into. Companies can have a widely varying number of shares outstanding and the number of shares outstanding can also change. Market cap is the true "price tag" on the entire company.

Successful investors determine what they think a company is worth in terms of its entirety and then compare that estimate of value to its "price tag" AKA market cap.
If your estimates of value are lower than the price tag then it might be a good buy because you're buying it for less than it's worth. If the market cap AKA "price tag" is higher than what you think it's worth, it's probably not a great investment because it's priced too expensively at this time.

Shares outstanding can change as companies do share buybacks, issue new shares, or do stock splits.

Companies do share buybacks as a way of returning value to shareholders (an alternative to paying a dividend) and this works by increasing your ownership percentage, since your ownership of the total increases as the total amount decreases. Issuing new shares does the opposite, your ownership percentage decreases as the total increases but the amount you own remains the same. However, the company you own does have more money as a result of the new share issuing. Stock splits have no fundamental impact on the company. A 5 for 1 stock split for example would be equivalent to having a $50 bill exchanged for 5 $10 bills. The value has not changed.

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TIMESTAMPS

00:00 Introduction and what you will Learn
00:42 Market Cap definition
01:12 Explanation with 4 example companies
02:12 Explanation with 4 real-life companies
03:18 Conclusions about Market Cap
03:36 Testing your knowledge with a question
03:58 Shares Outstanding meaning
04:20 Share price and market cap daily fluctuation
04:49 How shares outstanding can change
05:20 Charts of shares outstanding over time for real companies
06:18 Stock Splits Explained
07:44 Market Cap VS Value





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