Identification

• For individual stocks, you multiply the number of common shares outstanding by the current share price to calculate market capitalization. Corporate annual reports and balance sheets identify the number of common shares outstanding.
  
  

Features

• Market capitalization fluctuates with corporate profit potential. Improved earnings and new product releases often translate into a higher market capitalization. Alternatively, market capitalization declines amid economic recession.
  
  

Considerations

• Stocks may be categorized into small-, middle- or large-capitalization stocks. As of 2010, small-cap stocks feature market capitalizations of less than $2 billion, while large-cap stocks carry market values above $10 billion. Smaller companies generally carry more potential for expansion and higher returns. Risk is also elevated because small-cap stocks may be unable to compete with larger firms for financing and customers.
  
  

Strategy

• Fundamental analysis compares business value against market capitalization when making investment decisions. Investors covet undervalued stocks, where a corporation's superior earnings potential is not adequately reflected by its stock price.
  
  

Warning

• Market capitalization is not fixed over time. When product offerings become obsolete, large capitalization stocks lose value and can begin to behave as risky small-cap companies.