Market Cap Calculation Example

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Market Cap Calculation Example
Daniel Tella
A firm reports a book value of shareholders' equity of $850 million with 25 million of shares outstanding. Those shares are traded at $45 each in the stock market. An analyst values the equity by following the scheme: Value = book value + extra value. She calculates extra value of $675 million. Should she issue a buy or a sell recommendation to her clients?

Example of Market Cap Calculation
Jaap de Jonge, Editor
Estimated Value of Firm according to the formula of the analyst: $850M + $675M = $1525M.
Stock Market Value: 25M (number of shares) x $45 (price per share) = $1125M.
Because the Estimated Value of the firm exceeds the Stock Market Value, the analyst should issue a buy recommendation to her clients.



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