How to calculate the market value of a company

When the shares of a company are already publicly-held, the easiest way to calculate its market value is to multiply the number of shares outstanding by the current price at which the shares sell on the applicable stock exchange. If the shares only trade over the counter, then the trading volume may be so thin that the trading prices are not realistic. If so, a reasonable alternative is to develop a multiple of the sales for those companies that have reasonable trading volume to their market prices, and apply this multiple to the sales of the business. This latter approach can be subject to some uncertainty, since the more robust comparison entities may justifiably be worth more than the companies for which a valuation is being compiled. If so, it is likely that an excessively high market value will be generated.

As an example of the first situation, a business has 1,000,000 common shares outstanding, which trade at $30 on a major national exchange. Its market value is $30,000,000. As an example of the second situation, a company is developing a market value for itself based on a comparison to another business. The other business has a sales to market value ratio of 0.5 to 1. The company being measured has sales of $5,000,000, so its derived market value is $2,500,000.

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