What It Is:

A mid-cap company has a market capitalization between $2 billion and $10 billion, depending on the index being used.  Mid-cap is an abbreviation for middle capitalization.

How It Works/Example:

Market capitalization is a measure of the market value of a company. If the market value of the company is between $2 billion and $10 billion, then it's considered to be a mid-cap company. Market capitalization is calculated according to the following formula:

[Number of Share Outstanding] X [Stock Price] = Market Capitalization

For example, if a company has a share price of $5 and one billion shares outstanding, it is a mid-cap stock with a market capitalization of $5 billion. Since the market capitalization measures the market value based on the stock price, it changes as the price of the shares fluctuate. Knowing a compnay is mid-cap provide a general idea of the size of a company.

The thresholds or breakpoints between small-cap, mid-cap, and large-cap vary among investment advisors and indices.

Why It Matters:

Mid-cap stocks are typically in the middle of their growth curve, with expectations of increases in market share, productivity, and profitability.  Since they may be in a growth stage, they are considered less risky than small-caps, those companies with less than $1-2 billion in market capitalization.  However, mid-caps are considered to carry more risk, as a group, than large-caps which are those companies with market capitalizations of over $10 billion.

Grouping companies in these categories, of course, is a generalization and does not capture important features, strengths, and weaknesses of specific companies.  Investors should look further than a company’s market capitalization to assess the potenial risks and returns.