Norman Meier - How to Compare Market Capitalization & Stockholder's Equity

How to Compare Market Capitalization & Stockholder's Equity By: Norman Meier

Introduction • Before investing in a company, it's a wise idea indeed to have some idea of the company's value. There are a number of ways of evaluating a company's value, but two common ones are market capitalization and shareholder equity. These terms are not interchangeable, and each only describes one way of looking at a company. You can get a better understanding of a company's true value by comparing both methods of valuation.

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Tips to Compare Market Capitalization & Stockholder's Equity Market Capitalization Share holder Equity Campaign Reporting

Market Capitalization •

Market capitalization is the market value of a company at any particular moment in time.

You can determine a company's market capitalization by multiplying the market price of a single share of company stock by the total number of the company's outstanding shares.

A company's market capitalization may fluctuate from day to day, or even from moment to moment, based on the current market price of its stock.

Share Holder Equity •

Shareholder equity is sometimes referred to as a company's net worth. A company's shareholder equity is calculated by subtracting the company's liabilities from its assets. The remainder is shareholder equity.

The shareholder equity per share is determined by dividing the total shareholder equity by the number of outstanding shares.

Shareholder equity is not influenced by the market price of the company stock.

Comparison •

Shareholder equity may also be referred to as the liquidation value of the company. This is the amount of equity that is available to shareholders after a complete liquidation of all of the company's assets.

A company's market capitalization is almost always higher than its shareholder equity, because investors tend to include in the value of the stock certain factors beyond the liquidation value of the company, such as sales, earnings, patents and emerging market trends.

It may be advantageous to compare a company's market capitalization to its shareholder equity on a historical basic. A continuous expansion of the difference in amounts typically indicates higher investor confidence in company growth and profits. A steady decline between the amounts may indicate that a company is reaching its maturity within its market, and investors do not expect much continued growth.

Reporting •

One of the primary ways to determine a company's shareholder equity and market capitalization is by reading the company's annual report. Shareholder equity is reported on the company's balance sheet along with its assets and liabilities. A company's assets must always be equal to its liabilities plus shareholder equity, according to the U.S. Securities and Exchange Commission. The company's market capitalization may or may not be reported in its annual report, but the report will include the total number of outstanding shares and share price on a specific day. You can use these figures to determine market capitalization.

Norman Meier is a successful businessman who provides the help in more assets, capital and higher revenues than those with smaller market caps.