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Small & Micro Cap Education

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What are Small and Micro Cap stocks?

One way to categorise companies listed on the ASX is by size, otherwise known as market capitalisation, or ‘market cap’. Small cap and Micro cap stocks are classified on this factor.

A company’s market cap can be calculated by multiplying its current share price by the number of outstanding shares on issue in the company.

While broad market indices such as the ASX 200 and the All Ordinaries get the most media coverage, there’s many other indices that measure the performance of different groups of shares, including by size.

There is no universal definition for large, medium, or small cap companies and different markets divide them according to different characteristics. Below, are some examples based on the S&P/ASX indices in Australian dollar millions, as at 1 August 2018

  • What are Small Caps?

In the Australian context, Small Caps are all those companies that sit outside the largest 100 on the ASX by market cap. The S&P/ASX Small Ordinaries index (XSO) represents those smaller members of the S&P/ASX300 index. It’s used as a benchmark for small cap Australian shares. Companies in this index generally have a market cap of a few hundred million dollars to $2 billion. In this segment there can be up to 600 companies.

  • What are Microcaps?

Microcaps are stocks ranked between number 350 and 600, in order of ASX market capitalisation, with a daily trading value of $200,000. Companies in this index generally have a market cap of five hundred million dollars and below. On the Australian Stock Exchange (ASX), this segment has over 1900 companies.

  • What’s the difference between small and microcap stocks?

Other than the market capitalisation of the company as noted above, the difference between small and microcap stocks can be numerous and varied. Differences can include industry exposure, international revenue exposure, the lifecycle of the business, capital structure etc. It’s best to do your research into the opportunities available to you in this segment of the ASX.