Market cap is the total value of a company's outstanding shares, calculated by multiplying the stock price by the number of shares outstanding. It represents what the stock market believes the company is worth at that moment. It is the simplest way to measure a company's size, though it does not account for debt.
A company has 50 million shares outstanding trading at $40 per share. Its market capitalization is 50 million times $40, which equals $2 billion. This means investors collectively believe the company's equity is worth $2 billion, though this value can change quickly as the stock price fluctuates.
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