Market capitalisation

Market capitalisation, often shortened to market cap, tells you a company's total value according to the stock market. You calculate it by multiplying the current share price by the total number of shares the company has issued. If a company has 1 million shares trading at £50 each, its market cap is £50 million. This figure determines whether we classify a company as large, mid or small cap.

Large cap

Large cap companies are typically valued above £10 billion (or £5 billion for UK stocks). These are often household names and are typically the established players that dominate their sectors. In the UK, think Shell, HSBC or AstraZeneca. Large caps generally offer more stability and bigger profits though potentially slower earnings growth than smaller companies. They're often called blue chip stocks.

Mid cap

Mid cap companies sit in the middle ground, typically valued between £2 billion and £10 billion (or £400 million to £5 billion for UK stocks). Many FTSE 250 constituents fall into this category. These businesses have moved beyond the startup phase but haven't yet reached the size of market leaders. They often offer a balance between the growth potential of smaller companies and the stability of larger ones.

Small cap

Small cap companies are typically valued under £1 billion. These businesses offer potentially higher growth opportunities as they're earlier in their development. However, that potential comes with increased risk. Small caps can be more vulnerable to economic downturns, have less financial flexibility, and often feature wider bid-ask spreads, making them more expensive to trade. They suit investors comfortable with higher volatility.