Equity value
Valuation & CompsWhat the shareholders own: share price multiplied by fully diluted shares outstanding.
Also written: market capitalisation, market cap
Equity value is the residual claim. It is what is left of the business once every other provider of capital has been satisfied, and for a listed company it is simply the share price multiplied by the fully diluted share count.
Fully diluted is the part that gets skipped. Options, warrants and convertibles that are in the money will become shares, so they belong in the count, normally via the treasury stock method for options: assume they are exercised, and assume the proceeds are used to buy back stock at the market price.
Using basic shares understates equity value, and because enterprise value is built from it, quietly understates enterprise value too. That error survives all the way into a valuation output without ever looking wrong.
Equity value pairs with metrics that sit below interest, since lenders have already been paid at that point: net income, earnings per share, and for financial institutions book value. It should never be paired with EBITDA.
Worked example
Share price €40.00 with 100 million basic shares gives a basic equity value of 4,000.
There are 8 million options struck at €25.00. Under the treasury stock method they raise 200 on exercise, which buys back 5 million shares at €40.00, so net new shares are 3 million.
Fully diluted equity value is 103 million times €40.00, or 4,120. Using the basic count understates equity value by 120 and quietly understates enterprise value with it.