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Market Value or OMV (Open Market Valuation)
OMV is the price an asset would get in the marketplace, or the value the investment community gives to particular equity or business.
Market value is also used to refer to the market capitalization of a publicly-traded company. It is calculated by multiplying the number of its outstanding shares by the current share price.
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Understanding Market Value
A company's market value is a good indication of how investors perceive a business.
Market value is determined by the valuations or multiples accorded by investors to companies, including price-to-sales, price-to-earnings, enterprise value-to-EBITDA, etc. The higher the valuations, the bigger the market value.
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The Dynamic Nature of Market Values
- Market value is influenced by the business cycle and can fluctuate over periods of time. Market values decrease during recessions (bear markets) and rise during economic expansions (bull markets).
- Market value also depends on the sector in which the company operates, its profitability, debt load, and the broad market environment.
- Market value for a firm may be very different from book value or shareholders' equity. A stock will be considered undervalued if its market value is well below book value. It does not mean that a stock is overvalued if it is trading at a premium to book value - it again depends on the sector and the extent of the premium compared to the stock's peers.
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SIMILAR ARTICLES & IDEAS:
Black Friday has two relevant meanings
- In history, Black Friday was a stock market disaster that happened on September 24, 1869, when, after a period of uncontrolled speculation, the price of gold crashed, and th...
Black Friday and retail spending
- Retailers may spend an entire year planning their Black Friday sales. They use this event as their chance to offer special prices on overstock inventory and discounts on seasonal items, such as typical holiday gifts.
- Retailers also offer significant discounts on top-selling brands of TVs, smart devices, and other electronics, tempting customers in the hope that, once inside, they will purchase higher-margin goods.
- Consumers often shop on Black Friday for the hottest trending items, which can lead to stampedes and violence in the absence of adequate security.
"In the Black"
There is a theory stating that, when it comes to "Black Friday", the term "black" refers to being profitable, which comes from the old bookkeeping practice of recording profits in black ink and losses in red ink.
Retail businesses should be able to sell enough on this Friday (and the ensuing weekend) to put themselves "in the black” for the rest of the year.
Microeconomics: Comparative Advantage
The law of comparative advantage was first mentioned in 1817 by English economist David Ricardo.
A company has a comparative advantage when it is able to provide a good or service at
Opportunity Cost
An opportunity cost is the potential ‘alternative’ or benefit that is forfeited when one chooses a particular option.
The other, foregone option, if it is lower than other companies, is the key factor in this trade-off.
Skills: Diversity And Specialization
Comparative advantage is also measured by the salary yardstick, and how much a person’s time, skills and core skill sets are worth.
Example: Michael Jordan is a skilled basketball player, and is very tall. If he wants, he could paint his own house by himself and do it quickly due to his height. But as he is also a skilled sportsperson, he could earn much more in that time, and probably hire someone else to paint his house, even if the hired painter (who has a comparative advantage due to his specialization of painting houses) takes more time to do it.
Marginal Benefit vs. Marginal Cost
Marginal benefit and marginal cost are two measures of how the cost or value of a product changes.
- The marginal benefit is a measurement from the consumer
Marginal Benefit
A marginal benefit change in a consumer's advantage if they use an additional unit of a good or service.
A marginal benefit usually declines as consumption increases. For example, the consumer may buy one ring for $100, but only willing to buy another if the second ring is $50. The consumer's marginal benefit reduces from $100 to $50 from the first to the second good.
Marginal Cost
Producers consider marginal cost, which is the small but measurable change in the expense to the business if it produces one additional unit.
In producing a product, efficiency in productivity can result in making more products in the same amount of time. The cost of raw materials may also go down if it is purchased in bulk, therefore, decreasing the marginal cost.