Equity Value: What It Is and How It's Used
Equity Value vs. Enterprise Value
Equity value, also known as market capitalization, is the total value of a company's outstanding shares. It is calculated by multiplying the number of shares outstanding by the current market price per share. Enterprise value, on the other hand, is a measure of a company's total value, including both equity and debt. It is calculated by adding the market capitalization to the total debt and subtracting the cash and cash equivalents.
How Equity Value Is Used
Equity value is used by investors to assess the value of a company and make investment decisions. It is also used by companies to raise capital, as they can sell new shares to increase their market capitalization. Additionally, equity value is used by analysts to compare companies and their financial performance.
Factors That Affect Equity Value
There are a number of factors that can affect a company's equity value. These include:
- Earnings
- Revenue
- Growth prospects
- Risk
- Interest rates
- Economic conditions
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