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.
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
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The Difference Between Market Value per Share and Book Value per Share
There are several differences between market value per share and book value per share, which are as follows:
Derivation of value. The main difference is that market value per share is driven entirely by demand for a company’s shares, while book value per share is a firm’s net assets, divided by the number of shares outstanding.
Value volatility. The market value per share is much more volatile than book value per share, since it is driven by demand, while net asset levels only change at a slow pace.
Value amount. The market value figure is usually higher than the book value figure, because market value per share incorporates the value of unrecorded intangible assets, as well as the future growth prospects for a firm.
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.