Learn how to trade stocks
Go long or short on over 13,000 international shares with CFDs.
Market value definition
What is market value?
Market value is the term used to describe how much an asset or a company is worth on the financial market, according to market participants. It is commonly used to refer to the market capitalisation of a company, which is calculated by multiplying the number of shares in circulation by the current market price.
Difference between market value and book value
While the market value reflects what a business is worth according to market participants, book value reflects what a business is worth according to its financials (its books). The calculation for the book value of a company is its total tangible assets minus its liabilities.
Example of market value
To calculate the market value of a company, you would take the total shares outstanding and multiply the figure by the current price per share. For example, if ABC Limited has 50,000 shares in circulation on the market, and each share is priced at $25, its market value would be $1.25 million (50,000 x $25).
Pros and cons of market value
Pros of market value
Market value can give an indication of whether a company’s shares are over- or undervalued, depending on the difference between market value and the fair value. Traders and investors will often buy and sell stocks based on their findings. This allows them to take advantage of the disconnect between the two prices when the market corrects itself.
Cons of market value
To establish the market value of a share, there has to be historical data that can be used to compare the market value of one share against another. Without a comparable figure, a company’s value is not a useful indicator of whether market participants should be interested in the stock. There has to be a benchmark against which other market values are measured.
Market value can also be quite an objective measure, as share prices are determined by fluctuations in supply and demand. This means that the market value of an asset only represents what someone is willing to pay for it, rather than its intrinsic value.
Build your trading knowledge
Discover how to trade with IG Academy, using our series of interactive courses, webinars and seminars.
Help and support
Or ask about opening an account on 1800 601 799, or +61 3 9860 1799, or helpdesk.au@ig.com.
If you're calling from NZ, you can contact us on 0800 442 150
We're here 24 hours a day, except from 7am to 5pm Saturdays (AEST).
