How to Calculate Market Value: 3 Formulas and Methods - Growth Freaks

How to Calculate Market Value: 3 Formulas and Methods

Calculator, pen and post-its for calculating market value

Simply put, market value refers to the price of an asset in the marketplace. The term is also used to designate the market capitalization of a company that is publicly traded. It’s easier to find this number for exchange-traded instruments (futures, stocks) than for over-the-counter instruments (fixed income securities). Today we are going to have a look at how to calculate market value with the help of various formulas and methods.

How to Calculate Market Value in 3 Simple Ways

1. With the Help of Market Capitalization

The market capitalization refers to the total value of all the outstanding shares of a company. Basically, it’s the stock value of the company, multiplied by the total number of shares. As such, you can assess the overall size of your competitors. This method only works for publicly traded companies.

First, you need to determine the current share price for that company. Then, find out the number of shares outstanding and multiply it by the current stock price. The result shows the total value of all the investors’ stakes in the company.

2. With the Use of Comparable Companies

This method is good if the company is owned privately. It can also work if the market capitalization figure is unrealistic. First, you need to find comparable companies. Keep in mind that you should be discrete when choosing comparable businesses. Mostly, this refers to the same size, same sales and profits etc.

Next, come up with an average sale price. The average value is, in fact, an estimate of the market value. For instance, let’s take 3 medium-sized companies from the telecommunications field. People bought them for $750,000, $900,000 and $1,100,000. The average of these prices is $916,000. As such, the market capitalization of a certain company can reach $1,300,0000, which is extremely optimistic.

3. Use Multipliers

If you want to calculate market value for small businesses, remember that the best method is the multiplier one. With this, the first step you need to take is to find the necessary financial figures. You can find these values, in general, on the financial statement of the company, if it’s a publicly-traded one. If it’s a private one, then you will need their permission to access the data.

Next, you need to find the appropriate coefficient. It will vary according to the market conditions, industry, and other special concerns. The most common starting point, for example, is the total annual earnings. With the help of the coefficient, you need to calculate the value. After you find the financial figures and the coefficients you need, you must multiply the numbers.

Remember that this is merely a rough value for the company and not a precise estimation.

Conclusion

The three methods above are useful if you want to learn how to calculate market value. You will need to gather some previous information, which presupposes some time and energy spent on researching. However, the result will be an approximate one, so you can’t rely on this calculation to offer you the best results.

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Author: Amanda Knowles

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