What is Market Value?

Market value is the price at which a product or service could be sold in a competitive, open market. It is essentially a function of supply and demand, since an item in high demand for which there is minimal supply will sell at a high price - and vice versa. The market value concept is the basis for several accounting analyses to determine whether the book value of an asset should be written down. Market value can be determined most easily when there are a large number of willing buyers and sellers that engage in purchases and sales of similar products on an ongoing basis.

Market value is more difficult to determine when the preceding factors are not present. If so, an appraiser may be used to compile a reasonable approximation of market value.

The Market Value of a Business

The market value concept also refers to the market capitalization of a publicly-held entity. This is calculated as the number of a firm’s shares outstanding multiplied by the current price at which the shares trade. A variation for a privately-held business is called its comparable value, which involves comparing a company to similar businesses that have recently been sold or are publicly traded.

Related AccountingTools Course

Fair Value Accounting

FAQs

How is Market Value Different From Book Value?

Market value represents the current price an asset or company would fetch in an open market, while book value reflects the historical cost recorded on the balance sheet minus depreciation or liabilities. Market value fluctuates with investor sentiment, economic conditions, and supply-demand factors. Book value, by contrast, is relatively stable unless adjusted for impairments, write-downs, or asset revaluations.