Definition
Market value is the selling price of an asset or company on the open market, based on what buyers are willing to pay and what sellers are willing to accept.
What Is Market Value?
Market value is the price an asset would fetch in the market, based on the price that buyers are willing to pay and sellers are willing to accept. It may also refer to the market capitalization of a publicly traded company, calculated by multiplying the number of 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 it is a little more challenging for over-the-counter instruments like fixed-income securities. It is also difficult to get an objective market value for illiquid assets like real estate and businesses, which may necessitate the use of real estate appraisers or business valuation experts.
Key Takeaways
- Market value is the price of an asset on the marketplace, based on the prices buyers are willing to pay and what sellers are willing to accept.
- For publicly traded companies, market value refers to the market capitalization: the number of outstanding shares times the share price.
- For private businesses, market value can be estimated looking at metrics such as cash flow, earnings, growth prospects, assets, and liabilities as well as the selling prices of similar businesses.
- It may be difficult to determine the market value for illiquid or non-fungible assets, like real estate or businesses.
Understanding Market Value
A company’s market value is a good indication of investors’ perceptions about 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, and even trillions 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.
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