What is Market Value?
To understand investing in coins and the like, it is first important to understand the process of valuations. Market value is the price of an asset in the marketplace, simply put. It also refers to the market capitalization of a publicly-traded company.
Factors Affecting Market Value
- Market Perception.
How the stock market perceives information can affect the stock value of a company or a certain industry. Market perception is the customer’s response to a company’s products or services.
- Supply and Demand.
The most common factor that determines the market value of any stock is the supply and demand. Supply and demand dictates the market price of a stock as many factors influences it.
- Financial Performance.
A company that grows its earnings on a consistent manner is more likely to hold its value. Companies that perform well in both conditions, may it good or bad, usually see their performance rewarded by increases in their stock price.
- Economic Trends.
The market value of stocks can be affected by such things as economic trends. If a certain company is a part of those industry group that experiences a downturn, the company’s stock price can tumble even if it is producing good financial results.
The Difference of Market Value and Book Value
Market value is the current price of an asset to which you can sell it while book value is the price paid for a particular asset.
Basic generalizations about the relationships between book value and market value.
- Market Value Greater Than Book Value. The market assigns a higher value to the company due to the earnings power of the company’s assets.
- Book Value Greater Than Market Value. The financial market values the company for less than its stated value or net worth. In other words, the market doesn’t believe that the company is worth the value on its books. Value investors often like to seek out companies in this category in hopes that the market perception turns out to be incorrect.
- Book Value Equals Market Value. The market sees no compelling reason to believe the company’s assets are better or worse than what is stated on the balance sheet.
You can determine how the book value relates to market value by looking at the generated income of the company’s assets. A company that generates a relatively high income level from its assets could have a higher market value than book value.
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