Determining the value of a publicly traded company's shares is a lot easier than those of a small business. With a public company, all you need to do is to look what the shares are currently trading for. Small businesses don't have this luxury. To calculate the value of the common shares for your small business, such as an S-corporation or an LLC, you must first determine the value of the company. You can then divide that value by the number of shares.
- Common Stock In Balance Sheet
- How To Calculate Common Stock Outstanding
- How To Calculate Common Stock And Retained Earnings
Valuation via Multiples of Sales
There are several online resources that will give you a value for a business based on a rule of thumb for its industry based on sales. Here are a few examples of how a company's value varies by industry, according to BizStats.com.
- Accounting firms: 100 to 125 percent of the annual revenue.
- Book stores: 15 percent of annual sales, plus its inventory.
- Hardware stores: 45 percent of annual sales, plus inventory.
- Full-service restaurants: 30 to 35 percent of annuals sales, plus inventory.
If, for example, you owned a landscape business, a rule of thumb for that type of business would be 45 percent of annual sales. Thus, if your company brought in $2 million in sales last year, it would be worth $900,000.
Valuation via Comparable Companies
A second method of determining your company's value is to compare it to similar company with a value you do know. This is similar to how homeowners look at what their neighbors' homes are selling for before deciding what their house is worth. To do this, look for a publicly traded company that is in the same industry, with a similar number of employees and revenue as yours. Private companies aren't quite as liquid as public companies, because you can't sell your shares as easily as those that are listed on a stock exchange, so you should reduce the value of your company a bit when using this comparison method.
Valuation via Discounted Cash Flow
When deciding how much a business is worth, Warren Buffett first performs a discounted cash flow analysis. He does this taking the company's revenue and then projecting that into the future, discounted by the long-term interest rates of U.S. Treasury bills. A modified version of Buffett's system is to compare the company's profit to the long-term, T-bill rate. If your business brought in $100,000 of profit in the past year, and T-bills have a return of 3 percent interest, someone who bought your company would make about the same if they had bought $3.3 million in Treasury bills. Of course, this method assumes that your company's earnings will be stable.
Company Stock Value
When all is said and done, the value of your company is what you decide it is – provided someone is willing to pay that price for the shares. Once you have determined the value of your company, you can then divide that by the number of shares. For example, if your company is worth $500,0000 and you and your partners have a total of 50 shares, then each share would be worth $10,000.
If you have yet to divide your company's value into shares, keep in mind that you may be restricted, depending on your company's business structure. An S-Corporation, for example, can't have more than 75 shareholders and can't have shareholders who aren't U.S. citizens. An LLC can have as many shareholders as you would like and don't have restrictions on citizenship.
References
Resources
About the Author
A published author and professional speaker, David Weedmark has advised businesses on technology, media and marketing for more than 20 years. He has taught computer science at Algonquin College, has started three successful businesses, and has written hundreds of articles for newspapers, magazines and online publications including About.com, Re/Max and American Express.
More Articles
- For instance, let’s say you earn $100 per year in dividends from one of your investments and that you arrange to have this money reinvested into additional shares every year. If the stock trades at $10 per share and has a DPS of $1 annually, spending your $100 will get you ten more shares and another $10 in additional dividends per year, bringing your dividends to $110 in the next year. Assuming the stock’s price remains the same, you’ll be able to buy eleven more shares the following year, then about twelve the year after that. This 'compounding' effect will continue as long as you let it, assuming the stock price remains stable or rises. This focus on dividends as an investment strategy has made some people rather wealthy, although, alas, there are no guarantees of spectacular results.
Related Articles
- 1 Value Shares of a Company
- 2 Common Stock Valuations
- 3 High Price-Earnings & a Low Market-to-Book Ratio
- 4 Compare Market Capitalization & Stockholder's Equity
A market price for shares of common stock is the amount of money investors are willing to pay. The price of shares rises and falls in response to investor demand. Aside from the obvious fact that the price determines how much a share will cost you, it is also very useful – when combined with other information – to calculate market value ratios and decide if a stock is a good investment. Other information you need is available on financial reports issued by publicly traded companies, which can be found in the investor relations sections of these companies' websites.
Keep icons in place windows 10. I’d suggest clicking refresh several times.
May 31, 2019 Old title: Win Live Mail. I am unable to figure out how to uninstall Windows Live Mail 2012 from my Win 10 upgrade.I was convinced that WLM wouldn't work with Win 10 so I installed Thunderbird which I am very happy with. Remove windows live password from windows 10. How can the answer be improved?
Market Value per Share
The current market price or market value per share of common stock is always the last price at which shares were sold. Strictly speaking, market prices aren't calculated. Instead, they are arrived at through the give and take of buyers and sellers responding to market forces. These market forces affect economic conditions, changes in government policy, news about the company and even the stock's own price trend. According to economic theory, the market price tends to move toward an equilibrium point at which the number of sellers, or supply, equals the number of buyers, or demand. If the number of buyers should increase, the price will trend upward. Conversely, if the number of buyers falls or the number of sellers increases, the price tends to fall.
![How To Calculate Common Stock How To Calculate Common Stock](/uploads/1/2/3/7/123702579/500732427.png)
It's important to distinguish between market price and the book value per share of common stock. Book value is the accounting value of shareholders' equity after the company's liabilities are subtracted from assets as listed on the firm's balance sheet. Book value per share of common stock is calculated by deducting the value of any preferred stock from shareholders' equity and dividing the amount remaining by the number of common shares outstanding. For example, if a firm has $200 million in equity after deducting the value of preferred stock, and 10 million shares outstanding, the book value works out to $20 per share. Market price is not tied to book value, and is often very different.
Market Value Calculation
Normally, you simply look up the current market price quote of common stock. Sometimes, you may need past market prices, but these may not be readily accessible. This can happen when you are researching a stock and need to know how the price has changed over time. You can use the price/earnings ratio to calculate a historical market price estimate. The P/E ratio is a widely used measure calculated by dividing the market price on a given date by the earnings per share for the accounting period. To estimate the market price for the date, look in the company's annual report for the accounting period for the P/E ratio and earnings per share. Multiply the two figures. For instance, if the P/E ratio is 20 and the company reported EPS of $7.50, the estimated market price works out to $150 per share.
Market Value Ratios
A number of financial ratios use the market price per share of common stock. Investors often rely on these ratios to assess whether a stock is overvalued or if it is undervalued – and therefore may offer an opportunity to buy the stock at a bargain price.
Here are two examples:
The P/E ratio is the most widely used market price ratio. It tells you how many dollars you must invest to get $1 in earnings. The P/E ratio is best used to compare companies within the same industry. For example, tech firms may offer high growth rates, so investors will pay more for the shares; high P/E ratios don't always indicate the stock is overvalued. Conversely, a utility may offer stable earnings, but limited growth. A company in this industry usually has a relatively low P/E ratio.
The price to book value ratio tells you how much equity you acquire for each dollar invested. P/BV is calculated by dividing the market price by the book value of common stock. For example, a stock with a price of $100 per share and a $50 book value has a P/BV of 2. Many investors believe that a P/BV of less than 1 indicates the stock may be a bargain. However, you should look closely at other indicators, like earnings per share, to be sure the low price really is a bargain and not a warning sign that the company is having problems.
Common Stock In Balance Sheet
References (4)
Resources (2)
About the Author
Based in Atlanta, Georgia, William Adkins has been writing professionally since 2008. He writes about small business, finance and economics issues for publishers like Chron Small Business and Bizfluent.com. Adkins holds master's degrees in history of business and labor and in sociology from Georgia State University. He became a member of the Society of Professional Journalists in 2009.
Photo Credits
- Calculator image by Alhazm Salemi from Fotolia.com
How To Calculate Common Stock Outstanding
Choose Citation Style
Adkins, William. 'How to Calculate Market Price Per Share of Common Stock.' Small Business - Chron.com, http://smallbusiness.chron.com/calculate-market-price-per-share-common-stock-3396.html. 26 November 2018.
Adkins, William. (2018, November 26). How to Calculate Market Price Per Share of Common Stock. Small Business - Chron.com. Retrieved from http://smallbusiness.chron.com/calculate-market-price-per-share-common-stock-3396.html
Adkins, William. 'How to Calculate Market Price Per Share of Common Stock' last modified November 26, 2018. http://smallbusiness.chron.com/calculate-market-price-per-share-common-stock-3396.html
How To Calculate Common Stock And Retained Earnings
Note: Depending on which text editor you're pasting into, you might have to add the italics to the site name.