Which statement correctly describes how to calculate market capitalization?

Which statement correctly describes how to calculate market capitalization?

• A. Shares outstanding multiplied by current price per share.
• B. Total assets minus total liabilities.
• C. Net income divided by shares outstanding.
• D. Total revenues over the past year.

Answer: (C)

Market capitalization is the total market value of a company’s outstanding shares. It is calculated by multiplying the number of shares outstanding by the current price per share. This captures how many shares exist and what investors are willing to pay for each share at the moment. The other measures refer to different concepts: assets minus liabilities is shareholders’ equity, not market value; net income divided by shares outstanding gives earnings per share, a profitability metric per share; and total revenues represent sales over a period, not the value of the equity in the market. So, multiplying shares outstanding by the current price per share is the correct way to describe market capitalization.

Market capitalization is the total market value of a company’s outstanding shares. It is calculated by multiplying the number of shares outstanding by the current price per share. This captures how many shares exist and what investors are willing to pay for each share at the moment.

The other measures refer to different concepts: assets minus liabilities is shareholders’ equity, not market value; net income divided by shares outstanding gives earnings per share, a profitability metric per share; and total revenues represent sales over a period, not the value of the equity in the market.

So, multiplying shares outstanding by the current price per share is the correct way to describe market capitalization.