Finance: How do you Differentiate Between Large Cap, Mid-Cap and Small Cap Companies?

The general designated designation cut-off points for categorizing companies by market capitalization is as follows: Large Cap is $10 billion and above; Mid-Cap is $2-10 billion, and Small Cap is $300 million-$2 billion. Under $300 million can be considered Micro Cap. The categorizations are important for fund managers who operate under strict guidelines as to asset allocation, as larger cap companies tend to incur less risk but move more slowly, while the inverse is true with smaller cap companies.

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Transcript

00:29

well simply put to make categorizing investing in these companies easier,

00:33

mutual funds and index funds have somewhat arbitrarily created brackets

00:38

for the three different sizes of companies. the presumption runs that

00:42

smaller companies carry more risk but grow faster than very large companies.

00:48

they're more volatile and they appealed to a certain type of investor. medium

00:52

sized companies well yeah there's somewhere in the middle, shockingly. and [3 company sizes listed]

00:55

well yeah large cap they don't grow as fast a dividend usually and kind of they

01:00

are what they are. so what are the numbers. well this is how they were

01:03

created. the first gradation was started at a billion dollars or so and it ended

01:08

at about five billion like below a billion it's like a nano cap. or it's a

01:13

really small cap company and many companies grow through all three phases

01:16

of small medium and large cap. take a Netflix- please for 995 a month they pay

01:22

those four to say that. all right well Netflix came public at a valuation of [man speaks to camera]

01:25

around 300 million dollars, really small small cap. it then grew and grew and grew

01:29

from being a small cap company to a mid cap company when it passed the valuation

01:33

of five billion dollars, and then continued growing to the large cap

01:37

behemoth it is today at 50 billion plus. Netflix did well. so Netflix generally

01:43

kept its number of shares outstanding flat-ish few options there it got that

01:48

looted a little bit, and as a stock price rose the market capitalization rose, as

01:53

well or said another way investors valued the company more and more highly.

01:59

so Netflix graduated from being a small cap to being a mid cap, a half dozen [Netflix logo with stocks and investors pictured]

02:04

years or so after it went public, and a half dozen or so years later it

02:09

graduated past the twenty five billion dollar threshold to being considered

02:13

a large cap company. today and there's another casual class called mega cap

02:19

which generally comprises companies with market valuations over a hundred or two

02:24

hundred billion dollars. these companies are behemoths like ATT

02:29

Apple Amazon and many other companies whose names don't start with the letter

02:34

A. so that's it they differ between large mid and small cap companies you'll have

02:38

to make like Goldilocks and choose the one that's just right for you. [Goldilocks smiles at three bowls of various sizes on a table]