Market capitalization and net worth are two words that are used as a norm in the finance sector, but there still exists confusion between the two. People often use these two terms interchangeably, but market cap and net worth are two different things.
In this article, we will cover what is market cap and the difference between market cap and net worth.
What is Market Cap?
Market capitalization (market cap) is the total market value of a company’s outstanding shares. Commonly referred to as “market cap,” it is calculated by multiplying the total number of a company’s outstanding shares by its current market price. The investment community uses this figure to determine a company’s size, as opposed to using sales or total asset figures.
The term “cap” refers to capitalization, which means the total dollar market value of all outstanding shares. It’s calculated by multiplying a company’s shares outstanding by the current market price of one share. The investment community often uses the market capitalization value to rank companies in terms of size, as opposed to using sales or total asset figures.
For example, if a company has 1 million shares outstanding and trades at $10 per share, its market capitalization is $10 million. If the price then goes up by 40 percent and the number of shares remains constant, its market cap will increase to $14 million (1 million x $14).
Market capitalization is important because it gives investors an idea of the size of a company, and how the size has changed over time.
Net Worth
Net worth is a term that describes the total value of a company’s assets minus its liabilities, or debts. The formula for calculating net worth is:
Net Worth = Assets – Liabilities
Difference between Net worth and Market Cap
The difference between net worth and market cap is that net worth is based on balance sheet values while the market cap is based on the stock price.
Market capitalization, or market cap, is the total dollar value of all the outstanding shares of a company. Publicly-traded companies have a market cap calculated by multiplying their current share price by the number of shares outstanding.
Net worth is the total assets of a business minus its total liabilities. Net worth is used to assess a company’s financial health and overall stability.
Net worth and market cap are both used to evaluate the value of a company.