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This article was co-written by Marcus Raiyat. Marcus Raiyat is a British forex trader, founder/CEO of Logikfx. With nearly 10 years of experience, Marcus is well versed in forex, equities and cryptocurrencies, and specializes in CFD trading, portfolio management and quantitative analysis. Marcus holds a bachelor’s degree in mathematics from Aston University. His work at Logikfx has resulted in the company being nominated by Global Banking and Finance Review as the “Best UK Forex Education & Training Institution in 2021”.
There are 9 references cited in this article that you can view at the bottom of the page.
This article has been viewed 35,761 times.
If you are thinking of investing in a company or want to sell it, WikiHow will show you how to calculate the value of the company so that you can get the most accurate company valuation. The market value of a company represents investors’ expectations of its future profitability. [1] X Source of Research Unfortunately, however, valuing an entire business is not as easy as valuing smaller, more liquid assets, such as shares. However, there are many ways to calculate the market value of a company to find out the true value of that company accurately. Some of the simple methods discussed here involve looking at a company’s market capitalization (value of shares and outstanding shares), analyzing comparable companies, or using different metrics. industry multiplier to determine market value.
Steps
Calculate market value by market capitalization
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Determine whether market capitalization is the best valuation option. The simplest and most reliable way to determine a company’s market value is to calculate a value known as its market capitalization, which represents the total value of all its shares. circulate. Market capitalization is defined as the value of a company’s shares multiplied by the total number of shares outstanding. This value is used as a measure of the overall size of a company. [2] X Research Source
- Note: this method is only applicable to publicly traded companies and the share value can be easily determined.
- The disadvantage of this method is that the value of the company depends on market fluctuations. If the stock market declines due to an external factor, the market capitalization of the company will decrease, even if the financial position of the company remains unchanged.
- Because of its dependence on investor confidence, market capitalization is a highly volatile and unreliable method of calculating a company’s true value. Many factors can affect the determination of a company’s price per share and also its market capitalization, so it’s best not to rely solely on this value. However, any potential buyer can expect the same market and apply similar prices to the company’s potential profits.
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Determine the company’s current share price. The company’s share price is widely published on many websites, such as Bloomberg, Yahoo! Finance, and Google Finance, and many more. Try searching with the term “stock” followed by the company name or ticker symbol (if known) on a search engine to find this information. The stock value you need to calculate is the current market value, usually prominently displayed in the stock report on any major financial website.
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Find the number of shares outstanding in the market. Next, you need to find out how many shares of the company are outstanding in the market. This is the current number of shares of the company being held by all shareholders, including internal members such as employees and board members, and external investors such as banks and individual. [3] X Source of Research You can find this information on the same website as the stock price or on a company’s balance sheet as “equity”.
- By law, all balance sheets of public companies are posted online and free of charge. [4] X Sources of Research You can simply use a search engine to find any public company balance sheet.
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Multiply the number of shares outstanding by the current share price to determine the market capitalization of the company. This number represents the total value of all investors’ shares in the company, in order to give a fairly accurate picture of the overall value of the company.
- For example, consider Sanders Enterprises, an American public telecommunications company, suppose the company has 100,000 shares outstanding. If each share is currently trading at $13, and the company’s market capitalization is $100,000 * $13, we get a result of $1,300,000.
Find market value through comparable companies
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Determine if this is the correct pricing method to use. This valuation method yields fairly accurate results for privately owned companies or the market capitalization of the company is considered impractical for some reason. To estimate the value of a company, look at the selling prices of comparable companies. [5] X Research Sources
- Market capitalization may be considered unrealistic if a company’s value is primarily held in intangible assets and investors are overconfident or speculative activity drives the price up. exceed reasonable limits. [6] X Research Sources
- This method has some limitations. First, it can be difficult to find enough data, as comparable businesses’ sales are meager. In addition, this valuation method does not make a significant difference in the selling prices of companies, such as whether the company is forced to sell or not.
- However, if you are trying to find the market value of a private company, your options are limited, and this comparison method is a simple way to get a rough estimate.
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Find comparable companies. There are several decisions involved in choosing which businesses are comparable. Ideally, the companies under consideration should be in the same industry, roughly the same size, and have similar revenues and profits as the company you want to evaluate. In addition, selling prices (of comparable companies) must be taken in recent times to accurately reflect market conditions.
- If you want to determine the market value of a private company, you can compare public companies of the same industry and size. This method is easier because you can find the market value of these public companies in minutes using an online market capitalization search method. [7] X Research Sources
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Create an average selling price. After looking up recent prices for comparable businesses or valuations for similar public companies, calculate an average of all prices. This average can be used as a starting point in estimating the market value of the company you are looking for.
- For example, let’s say 3 mid-range telecom companies recently sold for $900,000, $1,100,000, and $750,000, respectively. The average of these three prices will be $916,000. It can be seen here that the market capitalization of Anderson Enterprises at $1,300,000 is an over-optimistic estimate of its value.
- You can consider other values based on how similar the company is to the target company. For example, if a company is very similar in size and structure to the company being estimated, you might choose to assign a higher weight to this company’s selling price when calculating the average selling price. For more information, you can see the details in the article how to calculate a weighted average.
Determine market value by multiplying
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Determine if this is the right approach to take. The most suitable method for valuing a small business is multiplier. This method takes income metrics, such as total sales, total sales and inventory, or net profit, and multiplies the appropriate factor to get the value of the business. This method is only an estimate and is best used as a rough estimate because it ignores many of the factors that are important in determining the actual value of a company. [8] X Research Sources
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Find the required financial data. In general, valuing a company by multiplying requires annual sales (or earnings) figures. You can estimate a company’s valuation by looking at the total value of the company’s assets (including the value of all current inventory and other holdings) and profit margins. [9] X Source of Research These values are usually available on the financial statements of a public company. However, for private companies, you need permission to access this information.
- Revenue or earnings, along with commissions and inventory costs where applicable, are reported in a company’s income statement.
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Determine the appropriate coefficient to use. The coefficient used depends on the industry, market conditions and any special business concerns. This number is somewhat liberal, but you can find a more precise number from a trade association or from a business appraiser. A good example is BizStat’s “rule of thumb” pricing. [10] X Research Source
- The source of the coefficient will also indicate the appropriate financial metric to use in your calculations. For example, gross annual income (net income) is a common starting point.
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Calculate the value by the coefficient. Once you’ve found the necessary financials and the right coefficients, simply multiply these numbers together to find an approximate estimate for the company. Again, keep in mind that this is a very rough estimate of market value.
- For example, suppose that the appropriate multiplier for mid-sized accounting firms is estimated to be 1.5 * annual revenue. If Anderson Enterprises’ sales this year are $1,400,000, the multiplying method yields the business value of (1.5 * 1,400,000), which is $2,100,000.
Advice
- The rationale for your valuation will influence the weighting with which you can purchase the company’s market value. If you’re considering investing in a company, your main concern is calculating the company’s CAGR, not its total value or size.
- A company’s market value can differ greatly from other company values, such as its book value (net worth of physical assets minus liabilities) and business value. (another metric that includes debt) due to fluctuations in liabilities and other factors. [11] X Research Source[12] X Research Source[13] X Research Source
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This article was co-written by Marcus Raiyat. Marcus Raiyat is a British forex trader, founder/CEO of Logikfx. With nearly 10 years of experience, Marcus is well versed in forex, equities and cryptocurrencies, and specializes in CFD trading, portfolio management and quantitative analysis. Marcus holds a bachelor’s degree in mathematics from Aston University. His work at Logikfx has resulted in the company being nominated by Global Banking and Finance Review as the “Best UK Forex Education & Training Institution in 2021”.
There are 9 references cited in this article that you can view at the bottom of the page.
This article has been viewed 35,761 times.
If you are thinking of investing in a company or want to sell it, WikiHow will show you how to calculate the value of the company so that you can get the most accurate company valuation. The market value of a company represents investors’ expectations of its future profitability. [1] X Source of Research Unfortunately, however, valuing an entire business is not as easy as valuing smaller, more liquid assets, such as shares. However, there are many ways to calculate the market value of a company to find out the true value of that company accurately. Some of the simple methods discussed here involve looking at a company’s market capitalization (value of shares and outstanding shares), analyzing comparable companies, or using different metrics. industry multiplier to determine market value.
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