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What Market Cap Does and Doesn't Tell You

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Market capitalization tells you something very important if you're an investor. But it doesn't tell you everything you need to know.

Market cap is the market equity value of a publicly traded company. 

Equity value is the residual value of the company, so the company's profit after everything has been paid off to suppliers, employees, lenders and the government.

So, market cap is the total value of all a company's shares of stock.

Easy enough, right?

Well, we have shares that are trading at small dollar figures and we have the total market cap of the company, which is a big number. And then we have the amount of debt outstanding on the company's books. So there's a lot flying around.

Imagine you hold stock in company 'X.' You hold its equity. You hold 1 share. There are 1,000 shares in the company.

The share you own is currently worth $5. Multiply 5 by 1,000. Go look on Google—you'll see the market cap of company 'X' is $5,000.

It's as simple as that. To see the rest, watch the quick video above. 

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