What is Market Value of Equity?
Market value of equity is the total market value of all of a company's outstanding shares.
How Does Market Value of Equity Work?
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 Does Market Value of Equity Matter?
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.