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Market value of equity is the total dollar value of a company's equity and is also known as market
capitalization. This measure of a company's value is calculated by multiplying the current stock price by
the total number of outstanding shares. A company's market value of equity is therefore always
changing as these two input variables change. 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.
Investors looking to calculate market value of equity can find the total number of shares outstanding by
looking to the equity section of a company's balance sheet.
A company's market value of equity can be thought of as the total value of the company decided by
investors. The market value of equity can shift significantly throughout a trading day, particularly if there
are significant news items like earnings. Large companies tend to be more stable in terms of market
value of equity owing to the number and diversity of investors they have. Small, thinly-traded
companies can easily see double digit shifts in the market value of equity because of a relatively small
number of transactions pushing the stock up or down. This is also why small companies can be targets
for market manipulation.
KEY TAKEAWAYS
Market value of equity represents how much investors think a company is worth today.
Market value of equity is the same as market capitalization and both are calculated by multiplying the
total shares outstanding by the current price per share.
Market value of equity changes throughout the trading day as the stock price fluctuates.
Market value of equity is calculated by multiplying the number of shares outstanding by the current
share price. For example, on March 28, 2019, Apple stock was trading at $188.72 per share. As of this
date, the company's stock buy back program has lowered the shares outstanding from over 6 billion to
4,715,280,000. So the market equity of capitalization is calculated as follows:
For simplicity, people usually quote the above market value of equity as $889.9 billion.
The Difference Between Market Value of Equity, Enterprise Value and Book Value
Market value of equity can be compared to other valuations like book value and enterprise value. A
company's enterprise value incorporates its market value of equity into the equation along with total
debt minus cash and cash equivalents to provide a rough idea of a company's takeover valuation.
The market value of equity is also distinct 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. A company's market
value of equity differs from its book value of equity because the book value of equity focuses on owned
assets and owed liabilities. The market value of equity is generally believed to price in some of the
company's growth potential beyond its current balance sheet. If the book value is above the market
value of equity, however, it may be due to market oversight. This means the company is a potential
value buy.
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