Loading the player...

What is 'Market Value'

Market value is the price an asset would fetch in the marketplace. Market value is also commonly used to refer to the market capitalization of a publicly-traded company, and is obtained by multiplying the number of its outstanding shares by the current share price. Market value is easiest to determine for exchange-traded instruments such as stocks and futures, since their market prices are widely disseminated and easily available, but is a little more challenging to ascertain for over-the-counter instruments like fixed income securities. However, the greatest difficulty in determining market value lies in estimating the value of illiquid assets like real estate and businesses, which may necessitate the use of real estate appraisers and business valuation experts respectively.

BREAKING DOWN 'Market Value'

A company’s market value is a good indication of investors’ perceptions of its business prospects. The range of market values in the marketplace is enormous, ranging from less than $1 million for the smallest companies to hundreds of billions for the world’s biggest and most successful companies.

Market value is determined by the valuations or multiples accorded by investors to companies, such as price-to-sales, price-to-earnings, enterprise value-to-EBITDA, and so on. The higher the valuations, the greater the market value.

The Dynamic Nature of Market Values

Market value can fluctuate a great deal over periods of time and is substantially influenced by the business cycle. Market values plunge during the bear markets that accompany recessions and rise during the bull markets that happen during economic expansions.

Market value is also dependent on numerous other factors, such as the sector in which the company operates, its profitability, debt load and the broad market environment. For example, Company X and Company B may both have $100 million in annual sales, but if X is a fast-growing technology firm while B is a stodgy retailer, X’s market value will generally be significantly higher than that of Company B.

In the example above, Company X may be trading at a sales multiple of 5, which would give it a market value of $500 million, while Company B may be trading at a sales multiple of 2, which would give it a market value of $200 million.

Market value for a firm may diverge significantly from book value or shareholders’ equity. A stock would generally be considered undervalued if its market value is well below book value, which means the stock is trading at a deep discount to book value per share. This does not imply that a stock is overvalued if it is trading at a premium to book value, as this again depends on the sector and the extent of the premium in relation to the stock’s peers.

RELATED TERMS
  1. Book Value

    1. The value at which an asset is carried on a balance sheet. ...
  2. Return on Market Value of Equity ...

    Return on market value of equity (ROME) is a comparative measure ...
  3. Book Value Per Common Share

    Book value per common share is a measure used by owners of common ...
  4. Liquidation Value

    The total worth of a company's physical assets when it goes out ...
  5. Adjusted Book Value

    The adjusted book value is a measure of a company's valuation ...
  6. Value Fund

    A value fund is a fund that follows a value investing strategy ...
Related Articles
  1. Investing

    Investment Value Vs. Fair Market Value: How They Differ

    Learn about the differences between an asset's investment value and its fair market value, including why many think fair market value is unrealistic.
  2. Investing

    Does Active Value Investing Pay Off?

    Learn about a well-researched paper that explores why active value investors underperform, and how value investing might be beneficial for your portfolio.
  3. Investing

    How to Invest Your Excess Cash in Undervalued Securities

    Learn how even small investors can shoot for substantial capital gains by starting to invest their excess cash in undervalued securities.
  4. Investing

    Learn to Value Real Estate Investment Property

    Make sure you know what your real estate investment is worth before you sign the ownership papers. Learn what capitalization rate means to your net operating income.
  5. Investing

    Book Value Per Share for Banks: Is It a Good Measure? (WFC, BAC)

    Find out why bank stocks usually trade below book value per share, and understand how trading activities increase banks' risk exposures and affect valuation.
  6. Investing

    A Guide to Value Investing Strategies

    Learn the value investing techniques that legendary investors like Warren Buffett and Peter Lynch have used to identify undervalued companies that pay off.
RELATED FAQS
  1. What is the difference between economic value and market value?

    Learn about the differences between economic value and market value. Discover how they serve different purposes for businesses ... Read Answer >>
  2. What is the difference between book value and carrying value

    Dig deeper into the definitions of carrying value and book value, and learn to differentiate between their various financial ... Read Answer >>
  3. How Are Book Value and Intrinsic Value Different?

    Book value and intrinsic value are two ways to measure the value of a company. Find out which is known as the true value ... Read Answer >>
  4. When does a growth stock turn into a value opportunity?

    Learn how fundamental analysts use valuation measures, such as the price-to-earnings ratio, to identify when a growth stock ... Read Answer >>
  5. What's the difference between book and market value?

    Book value is the price paid for a particular asset. On the other hand, market value is the current price at which you can ... Read Answer >>
Hot Definitions
  1. Receivables Turnover Ratio

    Receivables turnover ratio is an accounting measure used to quantify a firm's effectiveness in extending credit and in collecting ...
  2. Treasury Yield

    Treasury yield is the return on investment, expressed as a percentage, on the U.S. government's debt obligations.
  3. Return on Assets - ROA

    Return on assets (ROA) is an indicator of how profitable a company is relative to its total assets.
  4. Fibonacci Retracement

    A term used in technical analysis that refers to areas of support (price stops going lower) or resistance (price stops going ...
  5. Ethereum

    Ethereum is a decentralized software platform that enables SmartContracts and Distributed Applications (ĐApps) to be built ...
  6. Cryptocurrency

    A digital or virtual currency that uses cryptography for security. A cryptocurrency is difficult to counterfeit because of ...
Trading Center