Share Market

The Market value of equity is basically a synonym for market capitalization. It is used to measure a company’s size and helps investors to diversity their investments across companies of different sizes and different levels of risk. It is calculated by multiplying the company’s current stock price by its number of outstanding shares. A company’s market value of equity is therefore always changing as these two input variables change. A company’s market value of equity differs from its book value of equity because the former does not take into account the company’s growth potential.

In other words, the Equity value is the value of a company available to owners or shareholders. It is the enterprise value plus all cash and cash equivalents, short and long-term investments, and less all short-term debt, long-term debt and minority interests. The Equity value accounts for all the ownership interest in a firm including the value of unexercised stock options and securities convertible to equity.

From a mergers and acquisitions academic perspective, equity value differs from market capitalization or market value in that it incorporates all equity interests in a firm whereas market capitalization or market value only reflects those common shares currently outstanding.

The Equity value can be calculated two ways, either the intrinsic value method, or the fair market value method. The intrinsic value method is calculated as follows:

Equity Value= Market Capitalization + Amount of money in the stock options +value of equity issued from in the money which is convertible securities-proceeds from the conversion of convertible securities

The fair market value method is as follows:

Equity Value= Market Capitalization +fair value of all stock options (in the money and out of the money) calculated using the Black-Scholes formula or a similar method +value of convertible securities in excess of what the same securities would be valued without the conversion attribute

It is said that the fair market value method more accurately captures the value of out of the money securities.