How to Calculate the Market Value of the Firm

How to Calculate the Market Value of a Company

Edited by Carolyn Barratt, Jmuddy95, Lutherus, BR and 1 other

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When analyzing a company's financial health or looking to take ownership of it, estimating the company's value is a crucial process. Unfortunately, an entire business cannot be valued as easily as a smaller, more liquid asset like a share of stock. However, there are several ways to calculate the market value of a company with relative accuracy. These methods involve considering the company's stock value, analyzing recent comparable sales, and analyzing the company's balance sheet.

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Calculating the Market Value of a Company

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Calculate the company's market capitalization to estimate its value. The most reliable and straightforward way to determine a company's market value is to calculate what is called its market capitalization - the total value of all shares outstanding. Note that this method only works for publicly traded companies, where share values can be easily determined.

* Begin by determining the number of shares outstanding. Multiply this number by the current stock price to determine the market capitalization. This figure represents the total value of all investors' stakes in the company, giving a fairly accurate picture of the company's overall value.

* For example, consider Anderson Enterprises, a publicly traded telecommunications company with 100,000 shares outstanding. If each share is currently trading at $13, the company's market capitalization is (100,000 * 13) or $1,300,000.

* To look up the number of shares outstanding and the current price per share, you can use financial analysis websites like Google Finance and Yahoo Finance.

* A...