Market value per share
/What is Market Value per Share?
Market value per share is the price at which a share of company stock can be acquired in the marketplace, such as on a stock exchange. This price varies throughout the day, based on the level of demand for the stock. The price will rise when more investors want to buy it than are willing to sell, while the price will decline in the reverse situation. Value investors closely follow this figure to determine when it makes sense to acquire shares at a sufficiently low price. An issuing company's treasurer also tracks the market price to determine when the price is high enough to justify a new stock issuance that maximizes the amount of cash raised by the entity in proportion to the number of shares sold. A business can establish a floor for its stock price by creating a stock buyback program that acquires shares on the open market whenever the market price drops below a certain threshold level.
Example of Market Value per Share
As an example of market value per share, a recent stock price for Microsoft Corporation was $400. This means that if an investor wants to buy one share of Microsoft, they would pay $400 at the current market price. The market value per share constantly changes due to trading activity, earnings reports, and market conditions, so the price of a share of Microsoft was likely only briefly in the vicinity of $400.
What Influences Market Price per Share
The market value per share is influenced by a number of factors, including the following:
Reported income of the issuing entity
Reported cash flows of the issuing entity
Existence of a stock buyback program
Investor perceptions of the future prospects of an issuing entity
Investor perceptions of the future prospects of the issuing entity's industry, and of the economy as a whole
Related AccountingTools Courses
The Impact of Fraud Schemes on Market Value per Share
The stated market value of a share can be suspect when few shares are available for sale and/or a company does not list its shares on a stock exchange. In this case, share prices can vary wildly on just a few small trades. This situation makes it easier for individuals to engage in fraud by making a few small trades to ramp up the market value per share, which they then use to sell larger blocks of shares to unsuspecting investors at the inflated prices. Investors can avoid this issue by only purchasing shares in companies for which there is a large float.
FAQs
How Does Market Value per Share Differ from Book Value per Share?
Market value per share reflects the current trading price of a company’s stock in the open market. Book value per share is derived from the company’s accounting records and represents net assets per share. Market value captures investor expectations about future performance, while book value reflects historical costs and accumulated earnings. The two values often differ because market prices adjust quickly, while book value changes more slowly.