What does a higher market capitalization indicate about a company’s financial health?

A higher market capitalization typically indicates greater market confidence in a company's future prospects. When investors are willing to pay a higher price for a company's shares, it suggests that they believe the company is likely to generate strong earnings and growth in the future. This confidence can stem from a variety of factors, including solid financial performance, strong management, competitive advantages, or a positive industry outlook.

While market capitalization does reflect a company's valuation in the marketplace, it does not directly indicate whether a company is undervalued or overvalued, whether it has higher total assets, or whether it has higher levels of debt. The relationship between market capitalization and financial health encompasses investor sentiment and expected performance rather than specific financial metrics alone. Thus, a greater market cap is usually associated with a more favorable perception of the company's financial health and its ability to achieve sustained growth.