This Equity Template will allow you to calculate a company’s book value and market value of equity using the accounting method and financial analysis method.
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What is Equity?
In finance and accounting, equity is the value attributable to the owners of a business. The book value of equity is calculated as the difference between assets and liabilities on the company’s balance sheet, while the market value of equity is based on the current share price (if public) or a value that is determined by investors or valuation professionals. The account can also be called shareholders/owners/stockholders equity or net worth.
In this equity calculation example, the accounting method takes the difference between the assets and liabilities on the balance sheet and arrives at a value of $70,000. In the financial analysis method, an analyst builds a DCF model and calculates the net present value (NPV) of the free cash flow to the firm (FCFF). This gives us the enterprise value of the firm (EV) which has cash added to it and debt deducted from it to arrive at the equity value of $155,000. Note that the market value of equity is usually higher than the book value of equity.
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Below is a break down of subject weightings in the FMVA® financial analyst program. As you can see there is a heavy focus on financial modeling, finance, Excel, business valuation, budgeting/forecasting, PowerPoint presentations, accounting and business strategy.
A well rounded financial analyst possesses all of the above skills!
Additional Questions & Answers
CFI is the global institution behind the financial modeling and valuation analyst FMVA® Designation. CFI is on a mission to enable anyone to be a great financial analyst and have a great career path. In order to help you advance your career, CFI has compiled many resources to assist you along the path.
In order to become a great financial analyst, here are some more questions and answers for you to discover:
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