How to Calculate Market Value of Equity
The market value of equity, also known as market capitalization, is a straightforward calculation. It’s simply the current market price per share of a company’s stock multiplied by the total number of outstanding shares. Here’s the formula:
Market Value of Equity = Current Stock Price per Share x Total Number of Outstanding Shares
Let’s say, for example, a company’s current stock price is $50, and there are 2 million shares outstanding. The market value of the company’s equity would be:
Market Value of Equity = $50 per share x 2,000,000 shares = $100,000,000
In this case, the market value of the company’s equity, or market capitalization, is $100 million.
Remember, the market value of equity changes continually during trading hours as the stock price fluctuates. The number of outstanding shares can also change over time due to actions like stock splits, share buybacks, or the issuance of new shares.
Example of How to Calculate Market Value of Equity
Let’s consider an example using a fictitious publicly traded company, TechCo.
Suppose that TechCo’s current stock price is $25 per share and the total number of shares outstanding is 10 million.
We calculate the market value of equity (also known as market capitalization) by multiplying the current share price by the total number of shares outstanding.
Market Value of Equity = Current Stock Price per Share x Total Number of Outstanding Shares
So, the market value of equity for TechCo is:
Market Value of Equity = $25 per share x 10,000,000 shares = $250,000,000
Therefore, based on the current stock price, TechCo’s market value of equity or market capitalization is $250 million.
Remember, this market value of equity changes continually during trading hours as the stock price fluctuates. Additionally, the number of outstanding shares may change over time due to factors like share buybacks, stock splits, or the issuance of new shares.
