Mid cap is a financial term that communicates the value of a company. This value is ascertained using two pieces of information, the number of outstanding shares and the stock price. Although the range can vary, companies worth $2 billion US Dollars (USD) to $10 billion USD are generally considered mid cap. In many instances, these businesses are considered to have growth potential.
"Cap” is a shortened form of the word capitalization In the investment and finance world, market capitalization is used to provide an overall measure of a company's value. There are several levels, such as small cap, mega cap, and micro cap. These designations basically determine where in a market a particular business fits. In the case of a mid-cap company, it is considered to be in the middle.
To determine market capitalization, a person must take the number of shares of a company's stock that are outstanding and multiply them by the current stock price. For example, if DD Corp has 50,000 shares outstanding and the current stock price is $40 USD, the company's value is $2 million USD. DD Corp would therefore be considered a middle-cap company.
One issue with designating a company as being mid cap is that this can mean different things to different people. The range of $2 to $10 billion USD to characterize companies that are of middle-market capitalization is not conclusive. There are some individuals who will have a different range. Another issue is that stock prices are volatile. If stock prices drop, a company's status can also drop, and if prices rise, its status could be bumped up.
The stock of a mid-cap company is often considered growth stock. These companies have displayed a record of success that micro-cap or small-cap companies are still working to achieve. Yet companies in the middle have not achieved the same level of success as large-cap or mega-cap stocks, which may have little potential to experience wide-scale growth. As a result, many people are highly interested in opportunities to invest in mid-cap companies.
An experienced investor knows, however, that he cannot rely solely on the fact that a company is considered to be middle cap. The value that allows a company to receive that designation is a rough figure. Although that figure may superficially appear to suggest that a company is healthy, important factors such as projected net income or current debt are not factored into it.