Meaning and Definition
Market value refers to the price at which an asset is traded in the competitive auction setting. The apt definition for market value is the current quoted price at which a share of common stock or a bond is bought or sold by the investors at a specific time. The market value is, sometimes, also referred as “total market value”.
As explained by Investopedia, the market value, in context of securities is quite different from the book value for it takes into consideration the future growth potential. Usually, the market value of a real property, like land, or a home is determined by professional appraisers or real estate agents o the basis of a various key factors. Especially in chaotic markets, the market value can fluctuate spectacularly.
Formula for calculating the Market Value of a Company
The market value (MV) of a company is calculated using the following formula:
MV of a Company = No. of outstanding shares * Market Price per share
Steps to calculate the Market Value of a Company
The key steps involved in the calculation of market value of a company are:
- Estimate the total number of outstanding shares for a company. This info can, generally, obtained from the annual report of a company which can be downloaded from its investor relations website. If the required annual report is not found online and the broker also doesn’t have copies, they can be ordered directly from the companies.
- Find the current price of the company’s stock. It is a relatively an easy task to look up stock quotes online. A majority of financial websites provide tools for the task. It becomes even easier if you know about the company’s stock symbol and the exchange the stock is traded on. Moreover, this info is also mentioned in the annual report of the company. However, you might have to call a broker to ask for a quote for some small companies featuring low trading volume.
- Thereafter, the number of outstanding shares is multiplied by the price of the stock thus obtaining the market value of equity.