There are many ways to measure the size of a business. If someone says, ‘It’s a $5 million business”, they usually are referring to annual revenues. But an increasingly used measure is market capitalization.
Market capitalization, as the name implies, it is the total value in the stock market (for publicly traded companies) of its shares. It is therefore simply calculated as the current market price times the number of shares outstanding in the stock market.
Market Capitalization = Current Stock Market Price x Number Outstanding Shares
Mutual fund companies use this measure to stratify certain of their funds. Some are “large-cap”, “mid-cap”, “small- cap” or even “micro-cap”. When making financial investment decisions in the workplace of large companies, decision makers should use as their first order of analysis the effect of their potential investment on the shareholder by calculating the Net Present Value. This is the net addition to the companies’ market capitalization, assuming investors believe your analysis.