It is easy to understand why this happens. Many small investors get obsessed with the per-share price of a stock.
Market ValueĪt times, the term market value is interchangeably used for per share market price also. It is a company that may have shut its business, and the book value of assets and liabilities are no different than the current market realizable value. If it still exists for a company, there are no future prospects for the company. Market Value of Equity equal to Book Value of Equityįirst of all, it is an imaginary situation. It cannot much speak of the under or overvaluation of the company till it is not seen with more metrics like industry averages of Market to Book Ratio, P/E Ratio, etc. This helps a company in obtaining additional capital at favorable prices. It shows that investors believe in the strong growth prospects of the company. Market Value of Equity greater than Book Value of EquityĬonversely, when the market value of equity is more than book value, it implies a strong financial position for the company. Effectively, the company has not followed the accounting policies. This will keep the book value on the higher side, but this value will not be realized if the business’s assets are sold at this time. The value of this machine should be zero in place of, say, $250 Million. For example, high-value machinery is already obsolete in terms of its technology and has not been written off. This situation could be fraudulent accounting and inflated assets figures on the balance sheet. There is only one situation where the MV less than BV is justified. In the long term, these participants push the market price of the equity to reflect its actual value and thus bring market value closer to the intrinsic value. The larger the number of traders, investors, and analysts who participate and follow the equity market, the more volatile and efficient a market is. There are various factors that affect the market value of equity as follows: Number of Market Participants The market value of equity is extremely volatile as it is affected by the market price of a share. You can also use our Market Value of Equity Calculator Factors affecting Market Value of Equity The market value of equity shows the size of the company. Market Value of Equity = US$ 87.91 X 2.95 billion shares = US$ 259.34 billion
Let us understand it with an example – As on 18th April 2018, the share price of Walmart is US$ 87.89 then its market value of equity is: Market Value of Equity = Market Price per Share X Total Number of Outstanding Shares