How to Allocate Equity Value Between Different Classes of Common Stock

by Bryan Keythman

The market value of a company’s equity is known as its market capitalization, or market cap. A company’s market cap equals the sum of the market values of each class of its common stock. A company may issue different classes of stock to give certain voting rights and restrictions to different investors and owners. A company typically designates a letter for each class of stock, such as class A and class B. You can calculate the market value of each class of a company’s common stock to determine how much of its market cap to allocate to each class.

Find a public company’s balance sheet in either its 10-Q quarterly report or its 10-K annual report. You can obtain these reports from the investor relations page of the company’s website or from the U.S. Securities and Exchange Commission’s EDGAR online database.

Find the number of shares outstanding of each class of common stock, listed in the stockholders’ equity section of the balance sheet. For example, assume a company has 10 million shares of class A common stock outstanding and 1 million shares of class B common stock outstanding.

Visit any financial website that provides stock information. Type the ticker symbol for a class of stock in the required text box and click the button next to the text box to bring up the information for that class of stock. Do this for each class. A ticker symbol is one or more capital letters that is an abbreviation of the company’s name or something related to the company’s business.

Identify on the financial website the company’s market cap and the price per share of each class of stock. In this example, assume the company’s market cap is $105 million and that the prices for class A and class B stock are $10 and $5, respectively.

Multiply each class’ stock price by its respective number of shares outstanding to calculate each class’ market value, which is the amount of the total market cap you allocate to each class of stock. Continuing with the example, multiply 10 million by $10 to get $100 million in class A stock. Multiply 1 million by $5 to get $5 million in class B stock. This means that you allocate $100 million of the company’s $105 million market cap to class A common stock and $5 million to class B common stock.