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Market value of equity definition

Description

Market value of equity (market capitalization) is a measure that shows the value of the company. This value is calculated by multiplying the company’s share outstanding to market share price. Data needed to calculate this ratio is collected from stock market bulletin.

This measure is important for both the owners and the investors, and it is recommended to compare its’ value to the company’s book value, because market capitalization shows how the market values the company, while the book value is a measure showing company’s value by generally accepted accounting principles (GAAP).

Norms and limitations

In general, there are no norms for this ratio.

Formula

Share price shows the current market price of the share.

Shares outstanding might be explained as issued and outstanding shares.