BAJAJ BROKING

Notification close image
No new Notification messages
card image
Amanta Healthcare Ltd IPO
Apply for the Amanta Healthcare Ltd IPO through UPI in Just minutes
delete image
card image
Start your SIP with just ₹100
Choose from 4,000+ Mutual Funds on Bajaj Broking
delete image
card image
Open a Free Demat Account
Pay ZERO maintenance charges for the first year, get free stock picks daily, and more.
delete image
card image
Trade Now, Pay Later with up to 4x
Never miss a good trading opportunity due to low funds with our MTF feature.
delete image
card image
Track Market Movers Instantly
Stay updated with real-time data. Get insights at your fingertips.
delete image

Market Capitalisation vs Equity: Key Differences

Market Capitalisation vs Equity: Key Differences

Market capitalisation and equity are two terms encountered when analysing companies in financial markets. Understanding what each represents is a step in evaluating businesses. This article explains these concepts and outlines how they differ.

Market Capitalisation vs Equity: Understanding the Basics

Market capitalisation and equity are distinct financial metrics. Market capitalisation reflects the total value of a company's outstanding shares in the stock market. It is a figure that can fluctuate daily with share price movements. Equity, or shareholders' equity, represents the residual value of assets minus liabilities on a company's balance sheet. It indicates the portion of the company's assets owned by its shareholders. These two metrics serve different analytical purposes.

What is Market Capitalisation?

The total value of a company's shares that are offered for sale on the stock market is known as its market capitalisation, or simply market cap. This value is determined by multiplying the current market price of a single share by the total number of outstanding shares. For example, if a company has 100 million shares outstanding and each share trades at ₹50, its market capitalisation is ₹5 billion. Market capitalisation categories often include large-cap, mid-cap, and small-cap. These classifications are used by investors and analysts to describe the size of a company. The market capitalisation of a company can change throughout the trading day as its share price moves.

What is Equity?

Equity, specifically shareholders' equity, represents the ownership interest that shareholders have in a company. It is a figure found on a company's balance sheet, calculated as a company's total assets minus its total liabilities. Equity includes various components such as common stock, preferred stock, additional paid-in capital, and retained earnings. Retained earnings are the cumulative net earnings of a company that have not been distributed to shareholders as dividends. Equity indicates the book value of the company attributable to its shareholders. It does not directly reflect the market value of the company's shares.

Key Differences Between Market Cap and Equity

Feature

Market Capitalisation

Equity (Shareholders' Equity)

Calculation

Share Price times Number of Outstanding Shares

Total Assets – Total Liabilities

Nature

Market-driven value

Accounting value; book value

Volatility

Can change daily with share price fluctuations

Generally more stable; changes with financial performance

Focus

External perception of company value

Internal financial health and ownership stake

Reflects

Investor sentiment and market demand

Residual value for shareholders after liabilities are met

How Market Cap and Equity Affect Investment Decisions?

Market capitalisation and equity provide different perspectives for investment decisions. Market capitalization is often used to gauge a company's size and liquidity. A large market cap often suggests a company with a significant presence in its industry. Equity, on the other hand, provides insight into a company's financial structure and its ability to cover its liabilities. A company with consistent equity growth may indicate a history of profitability and reinvestment. Investors may consider market cap when looking for companies of a certain size or for a certain level of trading activity. Equity may be observed to understand the financial foundation of a company.

Common Misconceptions About Market Cap and Equity

  • Market capitalisation and equity are interchangeable: Market capitalisation reflects the market's current valuation of a company, while equity is an accounting measure of ownership.

  • A high market cap indicates financial soundness: A high market cap can be influenced by market sentiment and does not solely determine a company's financial health.

  • Low equity signifies a troubled company: A company with low equity might still operate effectively, particularly if it manages debt well and maintains strong cash flow.

  • The relationship between market cap and equity is fixed: The relationship between a company's market capitalisation and its equity can vary based on market conditions and company specifics.

Conclusion

Market capitalisation and equity are distinct financial metrics. Market capitalisation indicates the total market value of a company's outstanding shares. Equity represents the owners' stake in the company based on its balance sheet. Each provides different information for analysing a company. Understanding the calculation and meaning of each metric is a part of financial analysis.

Disclaimer: This article is for informational purposes only and should not be considered financial advice. Please consult with a qualified financial advisor before making any investment decisions.

Share this article: 

Frequently Asked Questions

No result found

search icon
investment-card-icon

Things to Know Before Investing in High P/E Stocks

Understand high P/E stocks, what the valuation means, how to manage risks, and when these shares may align with your long-term investment goals

investment-card-icon

Cash Flow Statement

Learn what a cash flow statement is, its structure, key components like operations, investing, and financing, and why it matters in accounting.

investment-card-icon

Counterparty Risk - Meaning, Types and Example

Counterparty risk refers to the chance that the opposing party in an investment, credit, or trade deal may fail to fulfill their obligations. Read the full blog.

investment-card-icon

What is Money Markets: Features, Instruments & Benefits

The money market trades short-term debt instruments known for high safety and typically lower returns compared to other investments.

investment-card-icon

5 Different Types of Dividends and Their Impact on Stocks

Get a clear view of 5 key dividend types and how they impact share prices. Know cash, stock, property, scrip, and liquidating Dividends in detail here.

investment-card-icon

Basis Points (BPS)

Confused about Basis Points? Get clarity on BPS meaning, calculation, real-life examples, and its role in trading, bonds, credit cards, and financial decision-making.

investment-card-icon

Capital Fund Meaning with Examples and Key Methods

Capital funding explained through practical methods, stock and debt issuance, cost factors, and relatable business examples for strong financial decision-making.

investment-card-icon

Asset Coverage Ratio: Meaning, Formula & Key Highlights

Asset coverage ratio shows how well a company can cover debts with assets. Know the formula, features, uses, and see a detailed example for better clarity.

investment-card-icon

Blue Chip vs Large Cap: Key Differences

Blue chip vs large cap stocks: Compare their characteristics, benefits, and risks to decide which fits your portfolio and supports your long-term investment goals.

investment-card-icon

High Priced vs Low-Priced Stocks: Key Differences

High-priced vs low-priced stocks: Compare their risks, returns, and which fits your goals. Get key insights to align your stock choices with your strategy.

Disclaimer :

The information on this website is provided on "AS IS" basis. Bajaj Broking (BFSL) does not warrant the accuracy of the information given herein, either expressly or impliedly, for any particular purpose and expressly disclaims any warranties of merchantability or suitability for any particular purpose. While BFSL strives to ensure accuracy, it does not guarantee the completeness, reliability, or timeliness of the information. Users are advised to independently verify details and stay updated with any changes.

The information provided on this website is for general informational purposes only and is subject to change without prior notice. BFSL shall not be responsible for any consequences arising from reliance on the information provided herein and shall not be held responsible for all or any actions that may subsequently result in any loss, damage and or liability. Interest rates, fees, and charges etc., are revised from time to time, for the latest details please refer to our Pricing page.

Neither the information, nor any opinion contained in this website constitutes a solicitation or offer by BFSL or its affiliates to buy or sell any securities, futures, options or other financial instruments or provide any investment advice or service.

BFSL is acting as distributor for non-broking products/ services such as IPO, Mutual Fund, Insurance, PMS, and NPS. These are not Exchange Traded Products. For more details on risk factors, terms and conditions please read the sales brochure carefully before investing.

Investments in the securities market are subject to market risk, read all related documents carefully before investing. This content is for educational purposes only. Securities quoted are exemplary and not recommendatory.

[ Read More ]

For more disclaimer, check here : https://www.bajajbroking.in/disclaimer

Our Secure Trading Platforms

Level up your stock market experience: Download the Bajaj Broking App for effortless investing and trading

Bajaj Broking App Download

10 lakh+ Users

icon-with-text

4.4 App Rating

icon-with-text

4 Languages

icon-with-text

₹5600+ Cr MTF Book

icon-with-text
banner-icon

Open Your Free Demat Account

Enjoy low brokerage on delivery trades

+91

|

Please Enter Mobile Number

Open Your Free Demat Account

Enjoy low brokerage on delivery trades

+91

|