Market Value Of Equity

Loading the player...

What is the 'Market Value Of Equity'

Market value of equity is the total dollar market value of all of a company's outstanding shares. Market value of equity is calculated by multiplying the company's current stock price by its number of outstanding shares. A company's market value of equity is therefore always changing as these two input variables change. A company's market value of equity differs from its book value of equity, because the market value of equity does not consider the company's growth potential.

BREAKING DOWN 'Market Value Of Equity'

Market value of equity is a synonym for market capitalization. It is used to measure a company's size and helps investors diversify their investments across companies of different sizes and different levels of risk.

The Calculation

Market value of equity is calculated by multiplying the number of shares outstanding by the current share price . For example, if the share price is $10 and the total number of shares outstanding is 1 billion, the market value of equity is $10 multiplied by 1 billion, or $10 billion.

Market Value Vs. Book Value

The market value of equity is different from the book value of equity. The book value of equity is based on stockholders' equity, which is a line item on the company's balance sheet . It is the difference between a company's assets and liabilities. By contrast, market value is based on stock price. Banks generally don't lend money based on stock price. The market value of equity does not describe a company's capital resources, but it does help to describe the company's size and evolution. Each level of capitalization provides insights about the company's market profile.

Market Profile

In general, there are three different levels of market capitalization, and each level has its own profile. Companies with a market capitalization of less than $2 billion are considered small capitalization, or small caps. Companies with a market capitalization of between $2 billion and $10 billion are considered medium capitalization stocks, also referred to as mid-caps. Companies with a market capitalization over $10 billion are considered large capitalization, or large caps.

Each level has a profile that can help investors gain insights about the behavior of the company. Small caps are generally young companies in the growth stage of development. They are risky, but have higher growth potential. Large caps are mature companies; they may not offer the same growth potential, but they can offer stability. Mid-caps offer a hybrid of the two. By owning stocks in each category, investors ensure a certain amount of diversification in assets, sales, maturity, management, growth rate, growth prospects and market depth.

RELATED TERMS
  1. Return on Market Value of Equity ...

    Return on market value of equity (ROME) is a comparative measure ...
  2. Market Capitalization

    The total dollar market value of all of a company's outstanding ...
  3. Large Cap - Big Cap

    A term used by the investment community to refer to companies ...
  4. Mid Cap

    A company with a market capitalization between $2 and $10 billion.
  5. Equity Market Capitalization

    A measure of the total market value of an equity market. The ...
  6. Market Value

    The price an asset would fetch in the marketplace. Market value ...
Related Articles
  1. Investing

    Explaining Market Value of Equity

    Market value of equity is the total value of all the outstanding stock as measured in the stock market at a particular time.
  2. Investing

    The Difference Between Enterprise Value and Equity Value

    Enterprise value calculates a business’s current value, while equity value offers a snapshot of that business’s current and potential future value.
  3. Investing

    What's A Company’s Worth, And Who Determines Its Stock Price?

    A company’s worth is the same as its market capitalization. Market capitalization is stock price multiplied by number of outstanding shares.
  4. Markets

    Market Value Versus Book Value

    Understanding the difference between book value and market value is a simple yet fundamentally critical component to analyze a company for investment.
  5. Markets

    How Equity Capital Markets Work

    An equity capital market is a market existing between companies and financial institutions that raises money for the companies.
  6. Markets

    Equity Multiplier

    The equity multiplier is a straightforward ratio used to measure a company’s financial leverage. The ratio is calculated by dividing total assets by total equity.
  7. Markets

    McDonald's Stock: Capital Structure Analysis (MCD)

    Learn about the importance of capital structure, and what equity and debt capitalization measures can tell us about the performance of McDonald's Corporation.
  8. Markets

    Book Value: How Reliable Is It For Investors?

    In theory, a low P/B ratio means you have a cushion against poor performance. In practice, it is much less certain.
  9. Markets

    UPS Stock: Capital Structure Analysis

    Analyze UPS' capital structure to determine the relative importance of debt and equity financing. Identify the factors influencing financial leverage trends.
  10. Markets

    Exxon Mobil Stock: Capital Structure Analysis (XOM)

    Investigate Exxon Mobil's capital structure and understand how equity, debt capitalization and enterprise value interact with each other.
RELATED FAQS
  1. What is the difference between market capitalization and equity?

    Understand the difference between market capitalization and equity, two primary measurements used to evaluate the worth of ... Read Answer >>
  2. What is the difference between market capitalization and market value?

    Understand the difference between market capitalization and market value, including the elements used for the calculation ... Read Answer >>
  3. What is the difference between book value and market value

    Learn the differences between book value and market value, and see how investors use each type to determine if a company ... Read Answer >>
  4. What's the difference between enterprise value and market capitalization?

    Learn the difference between two commonly utilized valuation tools: market capitalization and enterprise value, and see how ... Read Answer >>
  5. What is the difference between market capitalization and shares outstanding?

    Understand the relationship between shares outstanding and market capitalization and how market cap is interpreted to establish ... Read Answer >>
  6. Is par value or market value more important to stockholder equity?

    Find out about stockholders' equity, how to calculate it, and whether par or market value of stock is more important to stockholders' ... Read Answer >>
Hot Definitions
  1. Dove

    An economic policy advisor who promotes monetary policies that involve the maintenance of low interest rates, believing that ...
  2. Cyclical Stock

    An equity security whose price is affected by ups and downs in the overall economy. Cyclical stocks typically relate to companies ...
  3. Front Running

    The unethical practice of a broker trading an equity based on information from the analyst department before his or her clients ...
  4. After-Hours Trading - AHT

    Trading after regular trading hours on the major exchanges. The increasing popularity of electronic communication networks ...
  5. Omnibus Account

    An account between two futures merchants (brokers). It involves the transaction of individual accounts which are combined ...
  6. Weighted Average Life - WAL

    The average number of years for which each dollar of unpaid principal on a loan or mortgage remains outstanding. Once calculated, ...
Trading Center