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What Is Equity Market Capitalization?

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  • Written By: Jim B.
  • Edited By: M. C. Hughes
  • Last Modified Date: 05 September 2016
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Equity market capitalization is a measurement of the size of the stock market as determined by the total market capitalization of all the stocks included. Market capitalization, or market cap, is calculated by taking the outstanding shares offered by a company and multiplying that by the share price. Adding up all of the various market caps of stocks yields the total for equity market capitalization at any given time. This is a useful measurement to show how the stock market is rising or falling in terms of market cap over time or to compare the value of the stock market to the worth of other asset classes.

Investing in stocks means that a person is buying a small portion of ownership in the companies that offer stocks. For that reason, the stock market is sometimes known as the equity market, since investors have equity in the companies that sold shares of stock to them. The stock market is a huge part of the investment picture, but it is not the only group of investments available. As a way of measuring the stock market against other investments, equity market capitalization is very effective.

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To arrive at the equity market capitalization for a given time, it is necessary to first compute all of the market cap figures for all stocks that are available on the market. An individual stock's market cap is measured by the outstanding shares held by investors multiplied by the share price of the stock. For example, a company with 10,000 outstanding shares and a stock price of $20 US Dollars (USD) per share would have a market cap of $200,000 USD.

Once all of the market caps are calculated for individual companies offering stocks, those totals are added up to yield the total equity market capitalization. This figure gives a rough estimate of the total value of the stock market. It is important to note that these numbers are constantly fluctuating, meaning that the market caps should be measured as often as possible for a true reflection of stock market value.

There are several different ways in which analysts can use equity market capitalization as a way of judging the performance of the stock market as a whole. One way is to compare past amounts of equity market cap to the current level. Charting these figures can show if the value of the stock market is trending up or down. In addition, comparing equity market cap to the value of other assets, like bonds, commodities, or real estate, is a good way to show how the stock market stacks up to those other investments.

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