# Market capitalization

Market capitalization refers to the total value of a publicly traded company’s outstanding common and preferred shares in the open market. Publicly traded companies are listed on a public stock exchange.

The formula for calculating market capitalization is as follows:

(Number of common shares x market price) + (number of preferred shares x market price)

Only shares that have been authorized and issued are included in the calculation.

The market value of a company’s shares is often much higher than the “book value” indicated on the company’s balance sheet, which states the value when the shares were issued.

## More about market capitalization

Let’s say that ABC Co. has issued 1,000,000 common shares and 500,000 preferred shares. If the market value of each class of share is \$1.70 and \$1, respectively, then its market capitalization is \$2,200,000.

(1,000,000 x \$1.70) + (500,000 x \$1) = \$1,700,000 + \$500,000 = \$2,200,000

## Related definitions

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