Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail
Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail

Market Value of Equity

What it is:

Market value of equity is the total market value of all of a company's outstanding shares.

How it works (Example):

A company's market value of equity -- also known as market capitalization -- is the current market price of a company's stock multiplied by the number of all outstanding shares in the market.

For example, if a company's stock is currently valued at $50 per share and there are a total of five million outstanding shares, the company's market value of equity is $250 million ($50 per share x 5 million shares = $250 million).

Why it Matters:

Market capitalization reflects the theoretical cost of buying all of a company's shares, but usually is not what the company could be purchased for in a normal merger transaction. To estimate what it would cost for an investor to buy a company outright, the enterprise value calculation is more appropriate.

Thus market capitalization is a better measure of size than worth. That is, market capitalization is not the same as market value, which can generally only be assigned when the company is actually sold.

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