Market value is the total dollar or rial value of a company’s shares in the stock market. The method of calculating this value is to multiply the total number of shares of a company by its current price. Despite the importance of a company’s value, it is often difficult to quickly and accurately determine it. But the market value provides a quick and easy estimate of the value of a company. The capital market provides this possibility for public companies. By using this feature, it is possible to reach the size of the company. The importance of the size of the company is because it is considered an important factor for investors and that the investment risk can be calculated and investors can make decisions based on it.
Market Value and Investment
Due to the simple and effective nature of the market value for measuring risk, this factor can be considered a practical criterion for determining the amount of investment. In global markets, there are high value companies whose shares are worth more than 10 billion dollars. Such companies have usually been among the main elements of the industry for a long time. Investing in such companies that have large capitals will bring us big profits in a short period of time. But in the long run, along with the constant increase in stock value and the payment of dividends to investors, the desire for permanence and loyalty increases.
Mid-cap companies are valued between $2 billion and $10 billion. Such companies operate in an industry whose rapid growth is not far from expected. These companies have a growing trend, they will bear more risk than the companies of the first group; Because they are not sufficiently established. The third category companies are companies whose value is between 300 million dollars and 2 billion dollars and are known as companies with low market value. These companies are either new and emerging or are considered a subset of a particular set. Due to the shorter longevity of these companies, investing in them is considered risky. In addition, their sensitivity to economic crises is also higher.
Change in Market Value
The market value changes under the influence of two factors:
1. Changes in stock prices
2. Publication of new shares
Iranian companies basically raise capital in two ways; If their capital increase is from accumulated profits or revaluation of assets, we will not face a change in market value. But if this increase in capital happens from the place of claims and bringing in cash, what we are facing is new resources and capital that enters the company. In this case, after registering the amount of added capital, we will face some increase in the market value.
Investing in High Value Companies
First of all, we should tell the residents that although investing in this type of company has advantages,But it is not perfect either. For example, larger companies may provide more favorable conditions for their financing from banks or selling bonds. Or they may have a competitive advantage commensurate with their size.
On the other hand, an important point in this regard is the slow growth of the shares of these companies. However, for people who have lower risk-taking power in the field of investment, investing in companies with high market value will be more logical and ideal. Because the shares of such companies have less fall and due to their liquidity, the possibility of exit is available for investors.
Up To Sum
As mentioned, the market value expresses the value of a company’s shares in the stock market. The method of obtaining this value is to multiply the number of shares by their trading price. This case can be considered as a criterion for safe and secure investment. Based on this, the markets are divided into 3 groups, investing in high value markets is less risky.