How to Calculate the Market Value of a Firm's Equity

By Motley Fool Staff – Updated Apr 30, 2025 at 4:52 PM

Key Points

Market value of equity is calculated by multiplying stock price by outstanding shares.
Book value, derived from balance sheet equity, offers a less volatile valuation.
Market values may include premiums in takeover scenarios for controlling interests.

Coming up with a reasonable valuation for a business can often be a challenge. The best indicator of company value is what market participants are willing to pay for it, and so companies whose shares are listed on public stock exchanges have an advantage in giving interested investors an estimate of their value that's easy to calculate. Below, we'll look at how to calculate the market value of a firm's equity and how it relates to other valuation methods.

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Bear in mind that in some situations, the answer will be more complicated. For example, if a company has multiple classes of common stock, you'll have to account for the price and number of shares in each class. Similarly, if a company issues preferred stock in addition to common stock, then you'll need to gather information on both types of equity in order to come up with the total firm value.

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One limitation on market value is that transactions on the open market involve small minority interests in publicly traded companies. Typically, when an acquiring company makes a takeover bid, it will offer a premium to the recent market price. That premium reflects the added value of having a controlling interest versus being a minority shareholder.

Looking at the market value of a firm's equity lets you compare the relative sizes of different companies more easily. It's not the only way to put a value on a company, but it gives a useful starting point for your research.

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