Market capitalization is one of the important factors that investors need to understand when participating in the stock market. This is because market capitalization directly affects the return or risk of an investment, as well as the fundamentals of a company. Many people often consider investing in companies with large market capitalization, so what is market capitalization? Let's find out with PHS through the article below.

1. What is market capitalization?

Market Capitalization is the total present value of all outstanding shares of a business. It can be understood that, the market capitalization of a business is the total amount of money that needs to be spent to buy back that business at the market price at the time of purchase.

This term is often used by investors to measure the quality of a company. By knowing the market capitalization, an investor can determine the total amount it would take to buy all the shares of the company he or she wants.

Market capitalization is calculated using the formula:

Market capitalization = Number of shares outstanding x market price per share

Example: Company X has a total of 2 million shares outstanding, with a price of 10,000 VND/share per share. At that time, the market capitalization or market capitalization is: 2,000,000 x 10,000 = 20,000,000,000 (20 billion VND)

In addition, the market price of a company's stock fluctuates continuously every second, so the market capitalization also fluctuates and the number of shares outstanding can also change over time.

2. Types of market capitalization:

Basically, the market capitalization is divided into 4 groups: Large, medium, small and micro-caps.

Large Cap:

Large Cap, also known as Bluechip stocks, is a term to refer to companies that are considered large-cap with a market capitalization of over VND 10,000 billion. These are businesses with a large number of shares and high stock prices, which are highly trusted by people and are often the leading companies in the industry.

Some typical large-cap companies such as Vinamilk (VNM), BIDV Bank (BID), Vingroup Group (VIC),...

Mid Cap:

Midcap group has a medium scale of operation and number of stocks, with market capitalization ranging from VND 1,000 billion and under VND 10,000 billion. In addition, this is a group with very good growth potential and even more potential than the Large Cap group.

Some typical enterprises of this group: Hoa Sen Group (HSG),   PetroVietnam Technical Services Joint Stock Company (PVS),...

Small Cap:

Small Cap, also known as Penny stocks, is a group with a market capitalization of only 100 to less than 1,000 billion. Most of this group consists of companies that are quite young and have growth potential. However, due to the fierce competition in the market, businesses in this group are often neglected and not appreciated. When investing in the Small Cap group, investors will face potential risks such as the risk of bankruptcy from businesses in this group, but on the other hand, they can also gain very high potential profits.

Some examples of businesses in the Small Cap group: Ha Tay Trading Joint Stock Company (HTT), CMH VIETNAM Group (CMV),...

Micro Cap:

Enterprises are considered micro-cap when most of the stocks have low prices, the market capitalization will be below 100 billion dong. Often these micro enterprises will have very little data to evaluate, so when investing in, they need to be more cautious because it is very risky.

Enterprises in this group such as: VICEM Da Nang Building Materials JSC (DXV), Netland Real Estate JSC (NRC),...

Conclusion:

Market capitalization is one of the very important factors when evaluating a business. This value will both show the scale of operation and the market's assessment of the business in terms of growth potential, position and reputation in the industry. From there, investors will choose businesses that they can put their trust in to minimize risks as well as maximize profits. However, it can be seen that the market capitalization depends on the number of shares outstanding and the market price of the shares, so it will be timed and constantly fluctuating. Therefore, investors should research carefully and cautiously before making investment decisions.

Hopefully, with the information shared by PHS in the above article, investors will have a better overview and better understand the knowledge related to market capitalization. Follow PHS to update more knowledge about financial investment - useful securities.