A Lion's Share of the Market
A company's market share is its sales measured as a percentage of an industry's total revenues. You can determine a company's market share by dividing its total sales or revenues by the industry's total sales over a fiscal period. Use this measure to get a general idea of the size of a company relative to the industry.
Investors look at market share increases and decreases as a possible sign of relative competitiveness of a company's products or services. As the market of a product or service within an industry expands, a company that is maintaining its market share is growing revenues at the same rate as the total market. A company that is growing its market share will be growing its revenues faster than its competitors.
How to Calculate a Company's Market Share
To calculate a company's market share, first determine a period you want to examine. It can be a fiscal quarter, year or multiple years. Next, calculate the company's total sales over that period. Then, find out the total sales of the company's industry. Finally, divide the company's total revenues by its industry's total sales.
Investors can obtain market share data from various independent sources, such as trade groups and regulatory bodies, and often from the company itself.
For example, suppose you want to calculate a toy manufacturer's market share over one fiscal year. The toy manufacturer had total revenues of $20 million, and the toy manufacturing industry had total revenues of $200 million over one fiscal year. To find the toy manufacturer's market share, divide $20 million by $200 million. The manufacturer's market share is 10%.
Comparing Market Share in an Industry
Market share can also be used to compare similar companies within the same overall industry. For example, suppose another toy manufacturing business has total revenues of $40 million. This toy manufacturer has a 20% market share of the industry. This signals that this toy manufacturer out-competes the toy manufacturer from the previous example.
It is also possible to use market share over multiple periods to see how well a company fares against its competitors and whether the company is growing.
Companies are always looking to expand their share of the market, as well as grow the size of the total market by appealing to larger demographics, lowering prices, or using advertising.