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Market Value Definition and Term Explanation

Market value describes the asset price that can potentially fetch the marketplace. Also known as OMV (open market valuation), the term also depicts investment community expectations as well as quotative value it gives to a particular business or equity.

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In this article, we will look behind the market value definition to learn how to calculate it and why it is actually important for investors.

What Is Market Value?

The term helps to identify the publicly traded company market capitalization. To calculate market value, one needs to multiply the current price of the current price of a share multiplied by the number of its outstanding shares.

According to the market value definition, it is also one of the simplest tools for investors who want to determine different types of exchanged or traded assets. They may include futures or stocks. At the same time, it will have no or little use in effort to determine other asset types that refer to over-the-counter instruments such as securities with a fixed income.

Another challenge investors may face when using market value is to evaluate liquid assets like business or real estate. Here, you might need professional assistance provided by company valuation specialists.

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What Does Market Value Mean?

If you seek a reliable and trusted tool to identify business perceptions of investors, market value is definitely the one to use. The instrument comes with an enormous range making it possible to evaluate businesses of different sizes either small companies valuing under $1 million or some global leaders and biggest stock issuers boasting billions value.

To determine market value, it is necessary to consider multiples and valuations established by investors towards targeted companies. They generally include:

  • Price-to-Sales.
  • Price-to-Earnings.
  • Value-to-EBITDA and some more.

Market Value Nature

To understand the market value definition, it is important to take into account that it has a dynamic nature. It fluctuates from time to time. What’s more, it can move depending on a specific business cycle. For example:

  1. When the market is under bearish condition, market value usually plunges, as businesses recess.
  2. When the market is bullish, it rises backed by economic development and company’s expansion.

Factors that Affect Market Value

Apart from the overall conditions (bearish or bullish), market value depends on additional factors. First of all, it is necessary to identify the economic sector a targeted company specialises in. Secondly, we need to take into account how profitable the given segment is, the amount of debt load, how broad the market environment is, etc.

Divergence is also a factor that can influence market value. The equity of shareholders along with book value can affect this instrument significantly. For instance, if the market value is lower than the book value, it means the company's stocks are undervalued. In other words, traders have a chance to purchase stocks with a solid discount. So, the book value is a very important factor. Also known as explicit value, it may have a direct impact on the implicit value of the company defining the future movement of its stock price (either high or low).

This material does not contain and should not be construed as containing investment advice, investment recommendations, an offer of or solicitation for any transactions in financial instruments. Before making any investment decisions, you should seek advice from independent financial advisors to ensure you understand the risks.