Definition
Equity Value represents the total value of a company attributable only to its common equity holders (shareholders). For public companies, this is commonly known as Market Capitalization (Market Cap).
Conceptual Meaning
- Shareholders’ Claim: It is the value of the company’s assets net of all its liabilities (debt and other senior claims). It represents the residual value that belongs solely to the owners/shareholders.
- “Sticker Price”: Reflects the market’s perception of the value of owning the company’s common stock.
Calculation (Public Companies)
- Market Capitalization =
Relationship to Enterprise Value
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Equity Value is the starting point for calculating Enterprise Value (EV). The bridge formula highlights the relationship:
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Conversely:
Usage
- Used in per-share valuation metrics like the Price-to-Earnings (P/E) ratio, where both numerator (Price/Equity Value) and denominator (Net Income/EPS) relate only to equity holders.
See also: Enterprise Value (EV), Valuation, Market Capitalization, Shareholders’ Equity, Shares Outstanding