This somewhat general term can be interpreted in a few ways. In this article, we’ll be explaining the two most common and useful applications of the word.
The first is a general economic definition. Understand market value as it pertains to goods, profits and a company’s viability.
Second, we’ll talk about how the term ‘market value’ relates to the stock market. This definition is specific to the company’s share price and the value their stock buys and sells for.
What is ‘Market Value’?
When we talk about an item for sale, it’s easy to explain market value. It’s the estimate of the price a buyer will pay for this good or service. Likewise, it’s how much the item is likely to be sold for.
If you know the market value of a product, then you can make an educated sales or purchase decision. This is how market value can affect your bottom line – deciding how much profit you can make on a sale, or how much expense you endure in a purchase.
When we talk about the market value of a company, the definition becomes a bit looser. Market value becomes an all-encompassing term that decides the overall value of a company as compared to the market space it inhabits.
For example, let’s say you manufacture and distribute printers for corporate clients and international businesses. Your business reports $5 billion dollars in annual sales. If the printing industry is worth $76 billion annually, your company has about 3.8% of the printing market’s value.
Market Value and The Stock Market
When a company is public traded on the stock exchange, the term ‘market value’ takes on a specific meaning.
In other words, the market value of a company is determined by the price of it’s stock per share. A company’s market value in the stock exchange is fluid – it may rise and fall several times a day. While this value is determined by an innumerable amount of factors, the price stock shares are buying and selling for to not necessarily reflect the full financial value of a company.