Read the personal finance press and you'll see countless references to "small-cap," "mid-cap" and "large-cap" stocks. With these terms so widely used, you might think there was a single, agreed-upon scale for defining stocks according to company size, but there isn't. Market capitalization or "market cap" is used to describe a company's size and performance on the exchange. It's calculated by multiplying the price per share by the number of outstanding shares. By looking at how major stock market indexes define small- mid- and large-cap stocks, you can get a general sense of where the lines are drawn.
There is no strict definition in place for small, mid and large-cap ranges. Investors can use definitions implemented by a variety of major indexes, such as the Standard and Poor's 500.
Standard & Poor's Definitions
The most widely recognized definitions of small-, large- and mid-cap stocks are probably those used by Standard & Poor's. Its large-cap index, the S&P 500, appears daily on the front page of newspaper business sections and the home page of financial websites. To be included in the S&P 500, a company must have a market cap of at least $8.2 billion. At the small-cap end of the scale, Standard & Poor's offers the S&P SmallCap 600.
To be included, a company must have a market cap of $300 million to $1.4 billion. And in the middle is the S&P MidCap 400. Companies in this index must have a market cap of $1.4 billion to $5.9 billion. Notice that S&P's mid-cap range overlaps both the high end of the small-cap range and the low end of the large-cap range. Stock classification systems invariably include overlap.
Exploring the Wilshire 5000
Wilshire Associates compiles the Wilshire 5000, the broadest-based index of the overall stock market. It consists of more than 5,000 stocks of companies of all sizes. Wilshire places companies into four categories -- large-cap, mid-cap, small-cap and micro-cap -- based on where their market cap ranks among all the companies in the Wilshire 5000. To prevent excessive turnover of the stocks in each category, Wilshire does not continually re-rank the companies.
As a result, some stocks it calls "small-cap" are bigger than others it calls "large-cap." Still, the median market cap in each category -- the point at which half the companies are bigger and half are smaller -- is in line with the S&P definitions.
The Wilshire US Large-Cap Index consists of the top 750 companies. The Wilshire US Small-Cap Index includes companies 751 through 2,500, and the Wilshire US Mid-Cap Index lists companies 500 through 1000 -- completely overlapping the small- and large-cap ranges.
More About the Russell 3000
Russell Investments' broad-based stock market index is the Russell 3000, which consists of 3,000 stocks. Like Wilshire, it subdivides its larger index into large-, mid- and small-cap indexes. The large-cap index is the Russell 1000, which consists of the top 1,000 companies, give or take a few. The small-cap index is the Russell 2000, which includes all the rest of the Russell 3000. The Russell Midcap Index, meanwhile, is an 800-company subset of the Russell 1000 -- meaning that to Russell, "mid-cap" just means the smallest of the large-cap firms.
The median market caps in the Russell indexes fit the S&P definitions for each category. As of mid-2012, the large-cap Russell 1000 had a market-cap range of $1.35 billion to $540 billion (with a median of $5.2 billion). The Russell mid-cap index had a range of $1.35 billion to $17.4 billion (with a median of $4.1 billion). The small-cap Russell 2000 had a range of $101 million to $2.61 billion (with a median market cap of $460 million).
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