## Investors Must Know About Market Value and Why

If you're entering the world of investing, the term **Market Value** might sound complicated and full of numbers. But in reality, it is a tool that helps you decide whether investing in a company is worthwhile.

Understanding market value truly will help you avoid making decisions based solely on emotions. Instead, you'll think like an investor with a "brain" for finance.

## Market Value Is a Measure of a Business's True Worth

When we talk about **Market Value**, we're referring to the total value of all shares of a company that truly reflects the money flowing in the market.

A simple formula used to calculate this is **Market Value = Current Share Price × Total Number of Shares**.

For example, if Company AAA has a total of 300 million common shares and each share is trading at 1.50 baht, then the company's market value is 450 million baht.

Market value can indicate the size and importance of a company within the economy. However, it also has limitations that you should be aware of.

## What Factors Cause Market Value to Change

It's not a static number; a company's market value is constantly fluctuating because many factors are involved.

**Profitability and growth potential** are the real drivers of market value. If a company shows increasing revenue, smart cost management, and efficient resource use, investors will buy more shares, pushing the stock price higher.

**The overall economic environment** also plays a significant role. When the economy grows strongly, people have more money to spend, and companies earn higher profits, leading to higher market values. Conversely, during economic downturns or failures, market value tends to decline.

**Investor confidence** in the company's management, visionary leadership, a strong team, and clear plans can boost market value.

**Product or service quality** should not be overlooked. Companies with good products or services that satisfy customers build a good reputation in the market, which enhances trust and strengthens market value.

**Financial liquidity** is also important. If a company has sufficient cash, the ability to pay debts, and a solid financial structure, it indicates readiness to handle various situations.

## Difference Between Market Value and Market Price

Most people confuse **Market Value** with **Market Price**. Although related, they are fundamentally different.

**Market Price** is the current trading price resulting from the interaction of buyers and sellers. If buyers dominate, the price rises; if sellers dominate, it falls. This price fluctuates throughout the day based on market sentiment.

**Market Value** is a broader term. It is not just the current price but an assessment of the entire company's worth, calculated by multiplying the stock price by the total number of shares.

In terms of time frame, Market Value is often used for long-term analysis and investment decisions. Confident investors look at whether "this company is worth holding for the long term," while Market Price is more relevant to short-term traders or investors.

Market Value is calculated using financial methods or valuation models, whereas Market Price results from actual buy-sell transactions between two parties.

## Difference Between Book Value and Market Value

**Book Value** or **Accounting Value** is the net assets of a company, calculated as total assets minus total liabilities.

For example, if Company BBB has total assets of 500 million baht and total liabilities of 250 million baht, then its Book Value is 250 million baht.

This value indicates how much shareholders would receive if the company liquidated and sold all assets to pay off debts.

The difference between Book Value and Market Value is that Market Value is the price the market is willing to pay now, reflecting investor expectations for the company's future. Book Value is purely an accounting figure, which may not match the actual market perception.

**Market Value is volatile** because it is driven by confidence and expectations. **Book Value is more stable** because it is based on fixed accounting numbers.

## What Is Market Capitalization and How Is It Different from Market Value

**Market Capitalization** or **Market Cap** is a term often seen when referring to the **market value of a company's equity**.

The scope of calculating Market Value is broad and can include various assets or companies at different levels. Market Cap, however, is a specific calculation used only for companies listed on stock exchanges.

For example, as of the end of 2023, Apple's Market Cap was about 3.00 trillion US dollars. This figure tells investors how large Apple is and helps compare it with other companies to understand its size.

While both terms are similar, their applications differ. Market Value is a general indicator of the market worth of any asset, while Market Cap is specifically used to analyze stocks and assess company size.

## Limitations of Using Market Value

Although Market Value is a useful indicator, it has some limitations that investors should be aware of.

**Rapid fluctuations** are the first concern. Market value can change within minutes due to news, rumors, or unexpected events, causing stock prices and thus market value to swing dramatically.

**It doesn't tell the full story** about the company. Market Value is based solely on stock price and share count; it doesn't reveal profit margins, internal structure, or operational efficiency.

**It doesn't encompass all companies**. Market Value is mainly applicable to publicly traded companies. Private companies or small businesses without stock trading don't have a clear Market Value.

**Market-wide effects** can influence individual company valuations. A well-performing company might see its market value drop due to overall market downturns, or a struggling company might be buoyed by a booming economy.

## How to Benefit from Understanding Market Value

Once you understand what Market Value is, you can leverage this knowledge for better analysis.

Smart investors compare Market Value with Book Value. If Market Value is significantly higher than Book Value, it indicates investor expectations of growth. If it's excessively high, it might be a warning sign that "the price is too expensive."

Looking at Market Cap also helps classify companies into categories like **Large-cap**, **Mid-cap**, or **Small-cap**, each with different risk and growth opportunities.

## Summary

**Market Value** is a valuable tool for investment analysis. Whether you're a beginner or an experienced investor, understanding this principle will help you make smarter investment decisions.

However, remember that Market Value is just one piece of the puzzle. It should be used alongside other analyses such as technical analysis, financial data, and company news to get a comprehensive picture before making any investment in a business.