Market Value of Equity
It is also known as market capitalization. It means the value of the company’s equity share capital prevailing in the market. The market value of the equity calculator facilitates a quick calculation to find out what is the market capitalization of the company or what weightage the market gives to such companies from a share price perspective.
The market value is different from the book value of the shares. Book value of equity includes value or equity share capital plus reserves and surplus less loss, if any. A situation where the market value of equity is more than its book value is most preferable. The majority of the well-to-do listed companies have market prices of their shares more than their book value. It determines that the company is in the growing stage and has a very good scope of growth in the future. At the same time, a market value less than the book value is not usual. It means the market has no interest in investing in the shares of such a company. And, a market value equal to the book value means the company does not command the premium vis-a-vis its book value due to various factors.
For calculating the market value of equity, you will require the following two variables:
- Market price per share
- Total number of outstanding shares
The formula to calculate it is:
Market Value of Equity = Market Price per Share * Total Number of Outstanding Equity Shares
How to Calculate using Calculator?
The user has to enter the following two variables into the market value of the equity calculator.
Market Price per Share
The market price of a share means the price at which such shares trade in the open market. There are different ways that we can use to determine the market price per share. But the most popular of all is the dividend discount model. It considers all the future cash flows (dividend) on such shares to be received and discounts them to their present values.
For listed companies, it is the prevailing share price on the stock exchange.
Total Number of Outstanding Shares
Enter the total number of outstanding shares of the company. The company may not have issued all the shares as mentioned in its authorized share capital. Therefore, we only consider the number of shares issued by the company as only those shares trade in the market and hence, can have a market value.
Let us take an example to understand the calculation of the market value of equity.
Assume that a company has an authorized capital of 50,000 shares of $15 each. Out of these, it has issued 35,000 shares @ $20 per share. The current market price of one share is $57.9. Therefore, the market value of equity or market capitalization is equal to:
Market Capitalization = 35,000 * 57.9 = $2,026,500