Difference Between Large Cap and Small Cap

The stock price of the company’s share does not decide whether the company is large or small-cap. For example, if company A’s stock price is USD 50 and company B’s stock price is USD 20, it does not mean company A is a large-cap.

You are free to use this image on you website, templates, etc., Please provide us with an attribution linkHow to Provide Attribution?Article Link to be HyperlinkedFor eg:Source: Large Cap vs Small Cap Stocks (wallstreetmojo.com)

If company A has 100 million shares, the total market capitalization of company A is USD 5 billion; on the other hand, company B has 500 million shares, so the market cap of company B is USD 12 billion. Small-capitalization companies lie at the bottom of the market capitalization spectrum.

Large Cap vs. Small Cap Stocks Infographics

Let’s see the top differences between large-cap vs. small-cap stocks.

Key Differences

The followings are the key differences:

  • Large capitalization companies are less volatile and, hence, less risky to invest in. Hence, investments in these companies are appropriate for risk-averse. Whereas small capitalization companies are highly volatile; therefore, they are riskier to invest in, and therefore these are more suitable for risk-seeking investors.Large-capital capitalization companies have a market capitalization of more than USD 10 billion. Small-capitalization companies have a market capitalization of less than USD 2 billion.Small Capitalization stocks can give a higher return, but when there is a market downfall, these stocks fall higher than the Large capitalization. On the other hand, Large capitalization companies’ stocks provide mediocre returns in the bull markets but are not hit as hard as large-cap stocks.Large capitalization companies are big organizations and have strong balance sheetsStrong Balance SheetsA balance sheet is one of the financial statements of a company that presents the shareholders’ equity, liabilities, and assets of the company at a specific point in time. It is based on the accounting equation that states that the sum of the total liabilities and the owner’s capital equals the total assets of the company.read more. They are usually strong in financial strength and focus on high-growth segments. On the other hand, Small-capitalization companies’ financial strength is not that strong. Hence they are unable to invest in highly growing segments.Large capitalization companies’ stocks have enough cash on hand and are stable. Hence, it is easier to buy shares in bulk or sell shares as per the price of the investors’ wishes. Small companies are less liquid and grow; hence they wish to invest in their own company. In this, they face difficulty buying sharesBuying SharesKnowing how to buy shares is crucial for a person who wants exposure to the equity market. Equity markets are volatile, and timing is very important. Shares trade in exchanges, but you just can’t go and buy a share from the exchange. There are several steps involved in purchasing a share.read more in bulk and selling them at the price of the investor’s choice.Examples of Large capitalization companies in the Indian market are Infosys, TCS, Tech Mahindra, Wipro, and Reliance. Small-capitalization companies in the Indian market are Kriti, Vikas Ecotech, Sintex, etc.Information regarding these companies is readily available. These companies publish newsletters, annual review documents as well as media houses. Information on small capitalization companies may be available but not as detailed as the Large capitalization companies.Large capitalization companies lie on top of the market capitalization spectrum. Small-capitalization companies lie at the bottom of the market capitalization spectrum.

Large Cap vs. Small Cap Stock Comparative Table

Conclusion

The investor must conduct thorough research of the company he is looking to invest in before they look to invest in it. The following is a key point that an investor should consider before investing in any company, either small or large capitalization.

The most important point to consider is the short and long term plans of the company, its revenue model, the profitability of the company, whether the company has invested in anything apart from its business, the goodwillGoodwillIn accounting, goodwill is an intangible asset that is generated when one company purchases another company for a price that is greater than the sum of the company’s net identifiable assets at the time of acquisition. It is determined by subtracting the fair value of the company’s net identifiable assets from the total purchase price.read more of its key promoters, and the financial strength to stand on in difficult times.

This article is a guide to Large Cap vs. Small Cap Stock. Here we discuss the top differences between them and infographics and a comparison table. You may also have a look at the following articles –

  • Bull Market DefinitionMarket Cap vs. Enterprise ValueCalculate Free Float Market CapMid-Cap Stocks DefinitionQualitative Factors in Valuation