Market Value Of Equity
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.
Definition: Equity market value, also known as market capitalization, refers to the total value of a company's equity. It is calculated by multiplying the current stock price by the total number of outstanding shares. Therefore, a company's equity market value fluctuates with changes in these two input variables. It is used to measure the size of a company and helps investors diversify their investments among companies of different sizes and risk levels. Investors looking to calculate equity market value can find the total number of outstanding shares in the equity section of the company's balance sheet.
Origin: The concept of equity market value originated with the development of stock markets. As stock trading became more widespread, investors needed a simple way to measure company value. The earliest market capitalization calculations can be traced back to the late 19th century when stock markets began to form and become more regulated.
Categories and Characteristics: Equity market value can be divided into large-cap, mid-cap, and small-cap stocks.
- Large-cap: Typically refers to companies with a market value exceeding $10 billion. These companies usually have stable revenues and lower risk.
- Mid-cap: Companies with a market value between $2 billion and $10 billion. They generally have higher growth potential but also higher risk.
- Small-cap: Companies with a market value below $2 billion. While these companies may have high growth potential, they also carry the highest risk.
Specific Cases:
- Case 1: Suppose a company has a current stock price of $50 and a total of 100 million outstanding shares. The company's equity market value would be $50 * 100 million shares = $5 billion.
- Case 2: Another company has a stock price of $200 and a total of 50 million outstanding shares. The company's equity market value would be $200 * 50 million shares = $10 billion.
Common Questions:
- Question 1: Is equity market value equivalent to the actual value of a company?
Answer: Equity market value only reflects the market's valuation of a company's equity and does not necessarily equate to the company's actual value. - Question 2: What factors can affect equity market value?
Answer: Equity market value can be affected by fluctuations in stock price and changes in the number of outstanding shares.
