There are two factors that determine market capitalization—the number of shares outstanding and the current price of the stock. When the price of the stock goes up, the market cap goes up. The situation is reversed when the stock price declines; that decreases the market cap. Market cap can also fluctuate when shares are repurchased or if new shares are made available.<\/p>" } } , { "@type": "Question", "name": "Can Market Cap Be Used As a Risk Indicator?", "acceptedAnswer": { "@type": "Answer", "text": "
It’s a generalization that stocks with a bigger market cap carry less risk, while small caps are considered to be riskier. But that's not always true. A large-cap stock that carries a large amount of debt<\/a> on its balance sheet or that faces an unexpectedly bad news story, for example, can suddenly carry more risk than previously thought. Alternatively, a small-cap stock with steadily increasing earnings and little to no debt might be a less risky investment than some large caps.<\/p>"
}
}
,
{
"@type": "Question",
"name": "Why Do Wall Street Money Managers Look at Market Cap?",
"acceptedAnswer": {
"@type": "Answer",
"text": " For those investment professionals who run exchange-traded funds or certain types of hedge funds, it’s important to hold stocks with large market caps for the sake of liquidity. Since such funds hold large positions, it’s important for them to be able to trade sizable numbers of shares easily without affecting price volatility. Large caps generally have those types of characteristics.<\/p>"
}
}
]
} ] }
]