If you watch CNBC or any other financial show you have heard terms like small cap or large cap to describe a stock. One of the ways that stocks are classified is by the size of the company, also known as market capitalization. Market capitalization is the value of the company. This number is computed by taking the shares outstanding (amount of stock that shareholders own) and multiplying it by the current stock price. For example, IBM has 1.57 billion shares outstanding and the price of the stock on March 31, 2006 was $82.47. When you multiply $82.47 * 1.57 billion you get approximately $129.5 billion, which was the market value of IBM's stock on that particular day. Since stock prices and the amount of stock held by the public changes on a daily basis, the market capitalization can vary. Companies that start out "small" can become large over time and vice versa stocks that were large in value can reach bankruptcy and see their market value plummet. Let's explore each of the three major categories.

Small Capitalization (Small Cap) ---Companies with market values less than $1 billion are considered small. Often times these companies are in the early stages of their existence and experience strong growth. The growth is unpredictable which can cause stock price movements to be volatile, making these investments very risky.

Middle Capitalization (Midcap) ---Midcap stocks range between $1 billion to $10 billion in size. These companies can also produce rapid growth, but it tends to be more stable than small cap stocks.

Large Capitalization (Large Cap)--- Large cap companies have values greater than $10 billion. There are several stocks in this category worth more than $100 billion, which are known as "mega caps" or "blue chips". Large companies are typically household names like McDonalds, Wal Mart, and AT&T. These companies tend to have lower growth than small and mid sized companies, but investors seek these stocks because they are perceived to be less risky. Many large cap companies pay dividends, which are company earnings paid out to shareholders.

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