In many areas of the financial sector, including economics, accounting and investing, accurately assessing the value of a company can be of utmost importance. There are numerous ways to measure company size and value, and confusion naturally often arises, especially with similar-sounding terms.
Market capitalization colloquially referred to as "market cap," is a very simple metric based on stock price. To calculate a company's market cap, simply multiply the number of shares outstanding by the current price of a single share.
For example, a company with 50 million shares and a stock price of $100 per share would have a market cap of $5 billion. This definition of company "value" is often used in the investment sector to determine the size and strength of a company when analyzing potential trade opportunities.
While market cap is often referred to as the value of a company, or what a company is "worth," a company's true market value is infinitely more complex. Market value is assessed using numerous metrics and multiples, such as price-to-earnings, price-to-sales, and return-on-equity. These different metrics take into account several factors in addition to stockholder equity, such as outstanding bonds, long-term growth potential, corporate debt, taxes, and interest payments.
Confusion between market cap and market value stems from the fact that market capitalization is essentially a synonym for the market value of equity. However, these concepts are simple calculations based on assets only.
For example, while software giant Apple (AAPL) has a market capitalization of $741.37 billion at the end of 2018, its market value is $789.56 billion. In a more striking example of the difference between these two metrics, mega-retailer Walmart (WMT) has a market capitalization of $267.66 billion, but a market value of $354.21 billion.