Understanding Market Capitalization: A Guide for Investors

How to Calculate Market Value of Equity

Tip

Investors often categorize stocks based on their market capitalization. Although there is no official standard, large-cap usually refers to a market capitalization of more than $5 billion. From $1 billion to $5 billion is a mid-cap stock and less than $1 billion is considered a small-cap. Some people add more categories: Micro-cap stocks have a market capitalization of less than $250 million and nano-cap stocks less than $50 million.

Step 1

The market value of equity is another term for market capitalization. Market value of equity is defined as the total cash value -- based on the current market price -- of the fully diluted outstanding shares in a company. Fully diluted means this includes all shares owned by the pubic and restricted shares owned by company officers, plus any shares that would be issued if existing convertible bonds and stock options were converted to shares. Shares the company has issued and repurchased are not considered outstanding shares.

Step 2

Find the total number of shares outstanding for a company. This information is normally included in a company's annual report. You can download a company's annual report from its investor relations website. If you can't find the annual reports you need online and your broker doesn't have copies, you can order them directly from the company.

Step 3

Look up the current price of the company's stock. Looking up stock quotes online is relatively easy. Most financial websites provide tools to look up prices. It is easier if you know the company's stock symbol and the exchange on which it trades. This information is also in the company annual report. However, for some small companies with low trading volume, you may need to call a broker and ask for a quote.

Step 4

Multiply the number of outstanding shares by the price of the stock to calculate the market value of equity. For example, if a corporation has a total of 30 million shares outstanding and the stock is trading at $45 per share, the market capitalization works out to $1.35 billion. Keep in mind that this market value of equity is not a fixed amount. The market cap of a stock varies as the price of the shares changes.