The market value is the price that an asset or a company would fetch in the marketplace.
Method to evaluate market value for a big company (such as Google) listed on a stock exchange:
Price/Earnings Ratio = Price of a share in market/ earnings per share (company’s net income)
Net income for a company is the gross earnings minus all the expenses(including taxes)
Price to Earnings ratio indicates an extent to which the value of a company’s shares can increase in the market. For example, a company with a high Price/Earnings ratio indicates positive performance in the future. Hence, investors use this formula to determine the worth of an established company.
For a startup that isn’t listed on the stock exchange, the market value is determined through the valuation accorded by investors ( who provide funds to a startup). That means if an investor sets a high market value for a company, its worth increases in the marketplace.
How to determine the value of a startup at an early stage
It’s easy to value an established company. Factors like stock price, revenue can assist in determining the potential of a company. However, for startups, it’s a tough nut to crack. To simplify it, a startup founder should work on the factors that strengthen valuation before approaching an investor.
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Citations :
Power Words :
- Accorded
- Fetch
- Cashflow
- Patents
- Traction
- Paramount
- Subjective
- Valuation
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