Equity value is the value of a company available to owners or shareholders. It is the

enterprise value Enterprise value (EV), total enterprise value (TEV), or firm value (FV) is an economic measure reflecting the market value of a business (i.e. as distinct from market price). It is a sum of claims by all claimants: creditors (secured and unsecured) ...

plus all cash and cash equivalents, short and long-term investments, and less all

short-term debt The money market is a component of the economy that provides short-term funds. The money market deals in short-term loans, generally for a period of a year or less. As short-term securities became a commodity, the money market became a compon ...

, long-term debt and minority interests. Equity value accounts for all the

ownership interest Ownership is the state or fact of legal possession and control over property, which may be any asset, tangible or intangible. Ownership can involve multiple rights, collectively referred to as title, which may be separated and held by different ...

in a firm including the value of unexercised

stock options In finance, an option is a contract which conveys to its owner, the ''holder'', the right, but not the obligation, to buy or sell a specific quantity of an underlying asset or instrument at a specified strike price on or before a specified da ...

and securities convertible to equity. From a

mergers and acquisitions Mergers and acquisitions (M&A) are business transactions in which the ownership of companies, other business organizations, or their operating units are transferred to or consolidated with another company or business organization. As an aspec ...

to an academic perspective, equity value differs from

market capitalization Market capitalization, sometimes referred to as market cap, is the total value of a publicly traded company's outstanding common shares owned by stockholders. Market capitalization is equal to the market price per common share multiplied by ...

or market value in that it incorporates all equity interests in a firm whereas market capitalization or market value only reflects those common shares currently outstanding.

Calculating Equity Value

Equity value can be calculated in two ways, either the intrinsic value method, or the fair market value method. The intrinsic value method is calculated as follows: Equity Value =

Market capitalization Market capitalization, sometimes referred to as market cap, is the total value of a publicly traded company's outstanding common shares owned by stockholders. Market capitalization is equal to the market price per common share multiplied by ...

+ Amount that in-the-money

are in the money + Value of

equity Equity may refer to: Finance, accounting and ownership *Equity (finance), ownership of assets that have liabilities attached to them ** Stock, equity based on original contributions of cash or other value to a business ** Home equity, the diff ...

issued from in-the-money convertible securities - Proceeds from the conversion of convertible securities The fair market value method is as follows: Equity Value =

+ fair value of all stock

options Option or Options may refer to: Computing *Option key, a key on Apple computer keyboards *Option type, a polymorphic data type in programming languages *Command-line option, an optional parameter to a command *OPTIONS, an HTTP request method ...

(in the money and out of the money), calculated using the Black–Scholes formula or a similar method + Value of convertible securities in excess of what the same securities would be valued without the conversion attribute The fair market value method more accurately captures the value of out of the money securities.

References

Mathematical finance Fundamental analysis {{econ-stub