ELI5: What is Market Cap?

Imagine your friend Sarah has a lemonade stand.

• Let's say Sarah has 100 shares of her lemonade stand. Think of shares like tiny pieces of ownership.

• People really like Sarah's lemonade! Each share of her lemonade stand is worth $1. This is the share price.

• Market cap is simply how much the entire lemonade stand is worth.

Market Cap = Share Price x Number of Shares

In Sarah's case:

Market Cap = $1 x 100 = $100

So, the market cap of Sarah's lemonade stand is $100. That means if you wanted to buy everything that Sarah owns for her lemonade stand, it would cost you $100.

• Large market cap: Means the company (or lemonade stand) is big and stable. Think of a huge company like a giant supermarket.
• Small market cap: Means the company (or lemonade stand) is small and might grow quickly, but it's also riskier. Think of a new, tiny bakery.