let's say that both ben'sshoes and jason's shoes are publicly traded companies. and all that means isthat both of their shares are traded on exchanges. maybe it's the nasdaq, orthe new york stock exchange,
apple market cap, or some other exchange. and the going priceon those exchanges-- the last closing price for ben'sstock was $21.50 per share, and the last closing price forjason's stock is $12.00 per
share. what i want toexplore in this video, and probably thenext few is, what is that saying forwhat the market thinks these businesses are worth? so in both of these situations,they have 10,000 shares. and remember, the shares area split of the owner's equity. it's not a split of the assets. it's a split of just theequity part, right over here.
so if shareholders arewilling to pay 21.50 per share for ben's stock, and there are10,000 shares in ben's company. so you take 21.50 times--i'll do it this way-- times 10,000 sharesgives us a market cap. so 21.50 times 10,000gives us $215,000. and what this says is, look,if each of those 10,000 slices of the equity is worth 21.50,then the entire equity portion is going to be-- the marketis valuing it at $215,000. and this calculation,this multiplication
of the market price per sharetimes the number of shares, this is called the market cap. short for market capitalization. the market cap of the company. and all it is, iswhat is the market valuing the equity partof ben's company worth? let's do the same thingfor jason's company. you have $12.00 per sharetimes 10,000 shares. that gives us$120,000 market cap.
so the market is telling usthat even though on the books, ben's equity-- based onhow he valued his assets and his liabilities--is 135,000. the market is actuallyvaluing this at 215,000. and in the nextvideo, we'll think about what that means forhow the market is actually valuing the business. in the case of jason's business,instead of $35,000 of equity-- just straight up fromwhat's on the books--
the market is valuing thispiece right here at $120,000. so hopefully that givesyou a little sense of one, what sharesare a share of. they're a share of the owner'sequity, not of the assets. and also gives you a goodsense of what market cap is. it's the market's valueof the owner's equity. and notice, in bothcases-- and it's usually the case--it's going to be a different number than thebook value, the number that's
actually on the books.
