market capitalization, commonly called market cap, is the total dollar value of a company's outstanding shares. investors use the market cap as a simple way to measure a company's size. calculating market capitalization is easy. just multiply the number of a company's shares outstanding by the current stock price. for example, if a company has 35,000,000 shares outstanding with a stock price of $100, the company's market capitalization is $3,500,000,000. investors care about a company's size because it is one of the many characteristics that help determine investment risk. generally speaking, companies with a larger market capitalization are considered to have a potentially lower risk and lower return, while companies with a smaller market capitalization are considered to have a potentially higher risk and higher return. typically, the stocks of companies with a large market capitalization of $10,000,000,000 or more are called large cap stocks or big cap stocks. the stocks of companies with a medium size market capitalization of $2,000,000,000 to $10,000,000,000 are called mid cap stocks. and the stocks of companies with a small market capitalization between $300,000,000 and $2,000,000,000 are called small cap stocks. understanding market capitalization can help you choose individual stocks that meet your risk and diversification criteria. it can also help you choose mutual funds and etfs that meet these same criteria as they are often categorized by the market cap of their holdings.