Market capitalization

Market capitalization, or market cap, is what the stockTermStock×السهمA share of ownership in a company, bought and sold on a stock exchange, that may pay dividends and rise or fall in value.Open the term market thinks a company is worth at any given moment. It is the share price multiplied by the number of shares the company has issued. If a company's shares trade at SAR 100 and it has issued 10 million shares, its market cap is SAR 1 billion.

It is a snapshot, not a permanent valuation. The share price moves throughout the trading day, so the market cap moves with it. A company worth SAR 1 billion at the market close might be worth SAR 950 million at the next morning's open.

Market cap tells you the size of a company relative to others in the same sector or across the market. It is the first filter most investors use when deciding whether a stock fits their portfolio.

For a household investor, market cap matters because it signals liquidityTermLiquidity×السيولةHow quickly and easily an asset can be converted to cash without losing value or paying a large fee.Open the term and stability. A large-cap company, typically defined as one with a market cap above a certain threshold, has more shares trading daily, so you can buy and sell without moving the price much. A small-cap company may have fewer buyers and sellers, which means your order might take longer to fill or move the price more than you expected.

Market cap also correlates with volatilityTermVolatility×التقلّبThe speed and size of price swings in an asset, measured as how far returns stray from their average.Open the term. Smaller companies tend to swing more sharply on news or market sentiment, while larger ones move more gradually. That does not mean one is safer than the other, only that the ride is different. It also affects which indicesTermStock index×المؤشرA measure of how a group of stocks is performing, calculated from the prices of companies selected to represent a market.Open the term a stock belongs to: a company that grows large enough enters major indices, which can trigger automatic buying from index funds and change its trading patterns.

• Market cap is not the same as revenue or profit. A company can have a high market cap and lose money, or a low market cap and be highly profitable.
• Market cap can change by billions in seconds if the share price moves sharply, even though nothing about the company's actual business has changed.
• A high market cap does not guarantee stability. Companies can fall from large-cap to small-cap status if investors lose confidence, or rise quickly if sentiment shifts.
• Market cap is denominated in the currency the shares trade in. If you hold shares listed on a foreign exchangeTermForeign exchange×الصرف الأجنبيThe market where one currency is traded for another, at a rate that changes constantly based on supply and demand.Open the term, currency movements affect both the share price and what your position is worth in your home currency.