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. Surprisingly, there isn't. But 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.
The "cap" in small-, mid- and large-cap refers to market capitalization. That's the total market value of all a company's outstanding stock -- how much it would cost to buy up all the shares at the current market price. A small-cap stock, then, is one issued by a company with a "small" market capitalization (however you define small), a large-cap stock comes from a company with a large market cap, and a mid-cap stock comes from a company somewhere in between the extremes.
Standard & Poor's
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 $4 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 billion to $4.4 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.
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; as of late 2012, those companies had market caps ranging from $136 million to $516 billion, with a median of about $6.55 billion. The Wilshire US Small-Cap Index (companies 751 through 2,500) had caps ranging from $11.8 million to $3.85 billion, with a median of $525 million. And the Wilshire US Mid-Cap Index (companies 500 through 1000 -- completely overlapping the small- and large-cap ranges) had a range of $136 million to about $9.3 billion, with a median of about $2.56 billion.
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. Still, the median market caps in the Russell indexes fit the S&P definitions for each category. In mid-2012, for example, 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 Midcap Index had a range of $1.35 billion to $17.4 billion, with a median of $4.1 billion. And the small-cap Russell 2000 had a range of $101 million to $2.61 billion, with a median of $460 million.
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