market value

(noun)

The total value of the company as traded in the market. Calculated by multiplying the number of shares outstanding by the price per share.

Related Terms

Examples of market value in the following topics:

  • Market Value vs. Book Value

    • Book value is the price paid for a particular asset, while market value is the price at which you could presently sell the same asset.
    • Market value is often used interchangeably with open market value, fair value, or fair market value.
    • In many cases, the carrying value of an asset and its market value will differ greatly.
    • If the asset is valued on the balance at market value, then its book value is equal to the market value.
    • Ways of measuring the value of assets on the balance sheet include: historical cost, market value or lower of cost or market.

  • Maximizing Shareholder and Market Value

    • A goal of financial management can be to maximize shareholder wealth by paying dividends and/or causing the market value to increase.
    • There are several goals of financial management, one of which is maximizing shareholder and market value .
    • Thus, one interpretation of proper financial management is that the agents are oriented toward the benefit of the principals - shareholders - in increasing their wealth by paying dividends and/or causing the stock price or market value to increase.
    • The idea of maximizing market value is related to the idea of maximizing shareholder value, as market value is the price at which an asset would trade in a competitive auction setting; for example, returning value to the shareholders if they decide to sell shares or if the firm decides to sell.
    • Maximizing shareholder and market value is, for some, one of the goals of financial management.

  • MVA and EVA

    • MVA = PV (EVAs); MVA is the difference between current market value and investors' capital., and EVA is an estimate of a firm's economic profit.
    • Market Value Added (MVA) is the difference between the current market value of a firm and the capital contributed by investors.
    • The amount of value added needs to be greater than the firm's investors could have achieved investing in the market portfolio, adjusted for the leverage (beta coefficient) of the firm relative to the market.
    • where: MVA is market value added, V is the market value of the firm, including the value of the firm's equity and debt, and K is the capital invested in the firm.
    • The firm's market value added, or MVA, is the discounted sum (present value) of all future expected economic value added: MVA = Present Value of a series of EVA values.

  • The Weightings

    • MVe stands for the market value of equity; MVd stands for the Market Value of Debt; Re stands for cost of equity; Rd stands for cost of debt; and t is the company's tax rate.
    • If the person analyzing a company chooses or if the market value of a company's debt and equity is not available, the book value can be used.
    • Market value is the price at which an asset would trade in a competitive auction setting.
    • For market price to equal market value, the market must be efficient and rational.
    • Market value also requires the element of "special value" to be disregarded.

  • Chapter Questions

    • Calculate the market value of this T-bill.
    • If a consul pays $100 of interest every year and the market interest rate equals 6%, compute the market value of this consul.
    • If the yield to maturity is 5% and the bond matures in three years, calculate the market value of this bond.
    • If the yield to maturity is 20% and the bond matures in three years, compute the market value of this bond.
    • If a corporation expects to pay $1 dividend every year that grows 3% per year while the market interest rate is 4%, compute the market value of this stock.

  • Market/Book Ratio

    • The price-to-book ratio is a financial ratio used to compare a company's current market price to its book value.
    • The price-to-book ratio, or P/B ratio, is a financial ratio used to compare a company's current market price to its book value.
    • In the first way, the company's market capitalization can be divided by the company's total book value from its balance sheet.
    • P/B ratios are commonly used to compare banks, because most assets and liabilities of banks are constantly valued at market values.
    • A higher P/B ratio implies that investors expect management to create more value from a given set of assets, all else equal (and/or that the market value of the firm's assets is significantly higher than their accounting value).

  • Par Value at Maturity

    • Par value is stated value or face value, with a typical bond making a repayment of par value at maturity.
    • Par value, in finance and accounting, means the stated value or face value.
    • From this comes the expressions at par (at the par value), over par (over par value) and under par (under par value).
    • F = face value, iF = contractual interest rate, C = F * iF = coupon payment (periodic interest payment), N = number of payments, i = market interest rate, or required yield, or observed/ appropriate yield to maturity, M = value at maturity, usually equals face value, P = market price of bond.
    • Bond price is the present value of coupon payments and the par value at maturity.

  • Present Value of Payments

    • F = face value, iF = contractual interest rate, C = F * iF = coupon payment (periodic interest payment), N = number of payments, i = market interest rate, or required yield, or observed / appropriate yield to maturity, M = value at maturity, usually equals face value, and P = market price of bond.
    • The bond price can be summarized as the sum of the present value of the par value repaid at maturity and the present value of coupon payments.
    • The present value of coupon payments is the present value of an annuity of coupon payments.
    • The present value is calculated by:
    • Bond price is the present value of coupon payments and face value paid at maturity.

  • Types of Financial Markets

    • Examples of financial markets include capital markets, derivative markets, money markets, and currency markets.
    • There are many different ways to divide and classify financial markets: for example, into general markets and specialized markets, capital markets and money markets, and primary and secondary markets.
    • A key division within the capital markets is between the primary markets and secondary markets.
    • While capital markets and money markets constitute the narrower definition of financial markets, other markets are often included in the more general sense of the word.
    • Currency markets, enabled by foreign exchange (or forex) markets enable currency conversion and determine the relative value of world currencies.

  • Market Reporting

    • A stock index or stock market index is a method of measuring the value of a section of the stock market.
    • It is a tool used by investors and financial managers to describe the market and to compare the return on specific investments.
    • Stock market indices may be classed in many ways.
    • Stock market indices provide invaluable information for investors and accountants.
    • For example, the current market price per share, market capitalization, and trading volume are all readily available.