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Market Value Definition
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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SIMILAR ARTICLES & IDEAS:
A financial crisis
A financial crisis is often associated with a panic or a bank run where investors sell off assets or withdraw money from savings accounts.
- Asset prices drop in value.
- Consu...
Causes of a financial crisis
Generally, a crisis is caused if institutions or assets are overvalued, and can be worsened by panic and herd-like investor behaviour.
Contributing factors include systemic failures, unexpected or uncontrollable human behaviour, regulatory absence or failures, or contagions that is like a virus that spread from one institution or country to the next. If left unchecked, an economic crisis can cause a recession or depression.
Financial crisis examples
- The Stock Crash of 1929. On Oct. 24, 1929, share prices collapsed after a period of wild speculation and borrowing to buy shares. It led to the Great Depression, which was felt worldwide. One trigger of the crash was a drastic oversupply of commodity crops, which led to a steep decline in prices.
- The 20007-2008 Global Financial Crisis. This was the worst economic disaster since the Stock Market Crash of 1929. It started with a subprime mortgage lending crisis in 2007. Then it moved into a global banking crisis with the failure of investment bank Lehman Brothers in September 2008.
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.