How does Market Capitalization work?
Market capitalization, or “market cap,” is the total value of all outstanding shares of a publicly traded company (number of shares × share price). In financial markets, it is commonly used to group companies by size.
How Are Companies Classified?
There are several methods used in the financial world to categorize companies based on their market capitalization. One common reference is a classic scale — a set of fixed thresholds defined in the early 2000s that are still widely used today.
Companies with a value over $200 billion are classified as Mega Cap; $10 to $200 billion as Large Cap; $2 to $10 billion as Mid Cap; $300 million to $2 billion as Small Cap; $50 to $300 million as Micro Cap; and under $50 million as Nano Cap.
However, some institutions base their classifications on the current market landscape:
- Bloomberg also uses fixed thresholds, but adjusts them periodically. It differentiates by market type. For example, a company valued at $10 billion might be considered Large Cap within an emerging market, but only Small Cap in a global market that includes giants like Apple and Microsoft.
- MSCI uses a dynamic classification based on company rankings within a specific market. For instance: the top 70% = Large Cap, the next 15% = Mid Cap, and so on. This classification is reviewed twice a year.
- Morningstar uses relative classifications based on the regional stock universe. The top 33% = Large Cap, the next 33% = Mid Cap, and so on. These are reviewed annually.
How Does PDT Classify Companies?
PDT uses a fixed scale inspired by the classifications of Bloomberg, MSCI, and Morningstar. Our goal is to align with today’s market reality:
- We apply a single global standard, regardless of region. This makes it immediately clear which category a company falls into.
- Since Bloomberg, MSCI, and Morningstar take the market itself as a starting point, inflation is implicitly accounted for. If market conditions change structurally, we adjust our thresholds accordingly based on the same principles.
Our classification is as follows:
| Category | Market Capitalization (USD) | Example |
|---|---|---|
| Mega Cap | > $300 billion | Extremely large, internationally operating companies with strong global brand recognition. |
| Large Cap | $50 billion – $300 billion | Well-established leaders in their sector, often with a long track record. |
| Mid Cap | $10 billion – $50 billion | Mid-sized companies with a solid market position and room for further expansion. |
| Small Cap | $1 billion – $10 billion | Smaller companies with a focused market approach or regional presence. |
| Micro Cap | $100 million – $1 billion | Companies with a relatively small market footprint, often active in niche sectors or early growth phases. |
| Nano Cap | < $100 million | Very small companies operating locally or in specialized domains. |