CFA Level I Practice Test 2026 – Complete Exam Prep

Market capitalization is defined as the total market value of a company's outstanding shares of stock. This value provides a straightforward method of measuring a company’s size and is calculated by multiplying the current share price by the total number of shares outstanding. Investors often use market capitalization to evaluate the relative size of companies, compare performance across companies, and make investment decisions.

Understanding market capitalization is essential because it can influence investors' perspectives on the risk and potential growth associated with a company. Typically, companies are categorized as large-cap, mid-cap, or small-cap based on their market capitalization, which can dictate investment strategies and portfolio management approaches.

The other concepts addressed in the choices are distinct from market capitalization. Debt pertains to obligations that a company must repay, total assets reflect the overall resources it controls, and total revenue indicates the income generated from its operations. Each of these metrics offers valuable insights, but none align with the definition of market capitalization.