Equity Value (Definition) | Formula | Example & Calculation - YouTube

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equity value so you can see a graph over here and what we notice over here that

we are comparing market cap of three companies Exxon Apple and Amazon so let's

have a look at this graph of equity market value of Exxon Apple and Amazon

and we note that in 2007 in 2008 Exxon was far ahead in terms of the

equity value it's quite visible compared to the Amazon and Apple however over the

years you can see the market value of the equity has

increased and now they're leading companies basically you can say that

over the years Apple and Amazon's market value of the equity has significantly

increased and now they are leading companies by equity market value so does

equity value even matter that's the question over here you can

see the Exxon over here and this new graph look at this of Apple and same

with the Amazon even Amazon started growing so why this thing is it equity

what significance does equity value play no issues let's deal with this equity

value now equity value is basically what this right equity value no this will it

is enterprise value EV equity value is basically your summation or the sum

total of the value of the shareholders have made available for the business so

equity value is also called as your market cap right and can be

calculated by multiplying the market value per share which is your price into

your number of shares that is P into and so equity market value is very important

for a business owner especially when he plans out to sell the business and sells

his business equity market value gives a good measure of what a seller of a

business would receive after the debt has been paid so

let's have a look at some formulas of equity value formula so I mean I could

evaluate Formula so Equity Value Formula 1 market value of equity I will start with market value of

equity is going to be is equal to share price into number of outstanding shares

this is the first Formula know over here the share price is the last traded price

of the stock and the number of shares outstanding should be at the latest

figures available now there is another formula for this equity value formula

the second equity market value formula is commonly used to find the fair equity

value using DCF approach now there is a thing called enterprise value and equity

value so enterprise value basically I'll discuss over here enterprise value

EV at the very beginning is basically total assets and there are many other

things that are involved and your it involves your liability shareholders

equity net debt and equity value so the equity value in this particular scenario

is going to be equity value is equal to enterprise value minus the net debt which

is your next formula equity value is going to be your enterprise value EV -

your net so we use the steps to calculate the fair equity market value

now the first step goes something like this

use a DCF approach a DCF using FCFF that is of free cash flow to the form

DCF will provide us the fair valuation of the total firms enterprise value the

next step is use the formula of the enterprise value calculating using the

DCF we have to calculate over here evey so that is fair value t plus fair value

plus preferred shares plus minority interest you need to add any outstanding

debt and then deduct any cash and bank balance that will give you your

enterprise value then third we can finally calculate the fair equity

value which is equal to enterprise value that is a EV okay less any preferred

shares less any minority interest less any outstanding debt and you will add

back any cash and any bank balance okay so this is how it is it if we find the

fair equity value the target price of the stock is going to be fair equity

value which we found over here divided by the number of outstanding shares now

you need to note that something that market friends with the stock and the

target price of the stock are two different thing one is called market

price another is called target price they're two different thing let's assume

that market price of let's say Apple is $110 per share using DCF you may get a

target price of Apple close enough to let's say 135 this means that Apple is

basically undervalued this means you know it hasn't reached the price of 135

so one should take a pie position in this now

let's get to the next level equity market interpretation equity market

value is more useful to the seller of a business than an investor let's have a

detailed look at this let's say there is a there is a guy called Mr. A again and

he has a company which he wants to sell so Mr. A is a seller

now he is concerned about the valuation of the company one day while searching

for the buyers of his business mister A got a proposal from mr. B and mr. B said

he would buy Mr. A's business at certain valuation mr. B gave mr. a he mentioned

that he has taken some loan for his business which has not been fully paid

yet and mr. B say that then he would be the same as the valuation he has

calculated however there is this mr. a is saying that he will only receive the

money after payment of the debt and that's market value of equity in the

actual sense let's understand this in numbers let's say mr. B say that he

would pay 10 million for Mr. A's business before knowing that Mr.A

has still to pay some debt and mr. A mentioned that outstanding debt is mr. A

mentioned that outstanding debt is let's say 2 million so mr. B agreed to pay mr.

a 10 million for the business but that would be inclusive of the outstanding

that debt basically that means mr. A would only get how much it's going to be

10 minus 28 here the US 10 million dollars is the enterprise value and 8

million is the equity market value so let's do a final basic example on this

and we'll read will conclude on this let us do a basic value example of comparing

two companies on the basic equity market value and finding the larger one let's

say there are two companies this company A it has Company B there are some shares

they have and market price let's say there are 30,000 shares over here and

50,000 shares over here the market price is let's say over here 100 and

over here 90 so in this case we have given both the numbers of outstanding

shares in the market price of the shares let's calculate the equity market value

of the company a and Company B so the equity market value of the company is

going to be as simple as that shares

into the market price control R and there we go we have our answer three

3,00,000 and 4,50,000 right so basically what we we note that the

market value of the equity of company a is is basically more than

Company B but let's tweak few things and calculate enterprise value and let's see

you know how it turns out to the investor so based on this we can make

some find the conclusion in the final analysis it can be say that equity

market value is the best method if an owner of a business wants to know how

much he would get by selling his business from investor point of view

enterprise value will fit the pin so that's it for this particular topic if

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