Category Archives: stock-market

Market Value of a Company’s Stock

Posted on May 4, 2025 | Leave a comment

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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Preferred Stock

Posted on May 4, 2025 | Leave a comment

Definition

Preferred stock is a class of shares that give the holder a higher claim to dividends or asset distribution than common stockholders.

What Is Preferred Stock?

The term “stock” refers to ownership or equity in a firm. There are two types of equity: common stock and preferred stock. Preferred stockholders have a higher claim to dividends or asset distribution than common stockholders. The details of each preferred stock depend on the issue. 

Key Takeaways

  • Preferred stock is a different type of equity that represents ownership of a company and the right to claim income from the company’s operations.
  • Preferred stockholders have a higher claim on distributions (e.g., dividends) than common stockholders.
  • Preferred stockholders usually have no or limited voting rights in corporate governance.1
  • In the event of a liquidation, preferred stockholders’ claim on assets is greater than common stockholders but less than bondholders.2
  • Preferred stock has characteristics of both bonds and common stock, which enhances its appeal to certain investors.

Understanding Preferred Stock

Preferred shareholders have priority over common stockholders when it comes to dividends, which generally yield more than common stock and can be paid monthly or quarterly.1

Investor.gov, U.S. Securities and Exchange Commission. “Stocks: What Kinds of Stocks Are There?”

 These dividends can be fixed or set in terms of a benchmark interest rate like the London Interbank Offered Rate (LIBOR)​, and are often quoted as a percentage in the issuing description.

Adjustable-rate shares specify certain factors that influence the dividend yield, and participating shares can pay additional dividends that are reckoned in terms of common stock dividends or the company’s profits. The decision to pay the dividend is at the discretion of a company’s board of directors.

Unlike common stockholders, preferred stockholders have limited rights, which usually does not include voting. Preferred stock combines features of debt, in that it pays fixed dividends, and equity, in that it has the potential to appreciate in price. This appeals to investors seeking stability in potential future cash flows.

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