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

    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.
  6. 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.
  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

    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.
  10. Investing

    The Difference Between Book and Market Value

    Book value is the price paid for an asset. It never changes as long as the asset is owned. Market value is the current price at which the asset can sell.
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. What is the difference between a company's book value per share and its intrinsic ...

    Book value and intrinsic value are two ways to measure the value of a company.In simple terms, book value is based on the ... Read Answer >>
Hot Definitions
  1. Put Option

    An option contract giving the owner the right, but not the obligation, to sell a specified amount of an underlying security ...
  2. Frexit

    Frexit – short for "French exit" – is a French spinoff of the term Brexit, which emerged when the United Kingdom voted to ...
  3. AAA

    The highest possible rating assigned to the bonds of an issuer by credit rating agencies. An issuer that is rated AAA has ...
  4. GBP

    The abbreviation for the British pound sterling, the official currency of the United Kingdom, the British Overseas Territories ...
  5. Diversification

    A risk management technique that mixes a wide variety of investments within a portfolio. The rationale behind this technique ...
  6. European Union - EU

    A group of European countries that participates in the world economy as one economic unit and operates under one official ...
Trading Center