What does market capitalization represent?

Market capitalization, often referred to as market cap, represents the total market value of a company’s outstanding stock. It is calculated by multiplying the current share price by the total number of outstanding shares. This figure provides a clear assessment of a company's size and market value in the eyes of investors.

By focusing on the market value of the company's equity, market capitalization indicates how the market perceives the company in terms of growth potential and risk. A higher market cap generally suggests that investors have more confidence in the company's future prospects. This metric is commonly used to categorize companies into different segments, such as small-cap, mid-cap, and large-cap, which can influence investment strategies.

In contrast, the other options highlight different financial attributes of a company rather than its overall market valuation. The value of a company's physical assets refers to its tangible assets and does not account for market sentiment or stock performance. Annual revenue focuses solely on sales, providing insight into operational success but not the company's market worth. Total liabilities examine the debts and obligations of a company, which again is a different aspect of financial health unrelated to how the market values the company's equity.