How to Determine Common Stock Market Value
- 1). Review the types of market valuation used. For stocks, the most common valuation methods are price-to-earnings ratio, earnings per share, and market capitalization.
- 2). Look up a quote. This is perhaps the easiest way to determine the value of common stock. Use the ticker symbol to do a Google search You'll get a quote for the stock (what it costs to buy the stock in the market). You can also go to Yahoo! Finance. It is rated the No. 1 financial research tool on the Internet, according to Alexa.com.
- 3). Calculate earnings per share (EPS). This is one way to compare the market value of a company against others. EPS is calculated by taking company earnings (net income) and dividing by the number of shares of outstanding for a company. You can find net income on the income statement and the number of shares outstanding on the balance sheet and/or cash flow statement.
- 4). Calculate market capitalization. Market capitalization helps to determine the size of a company, but also provides an indication of the value of a company's stock in the marketplace as a whole. The calculation is number of shares outstanding multiplied by the current price of the stock.
- 5). Calculate price-to-earnings (P/E) ratio. This tells investors whether the market value is too high or low compared with earnings. A high P/E ratio indicates the market value is high (the stock may be overbought) and a low P/E ratio indicates the market value is too low (the stock may be undervalued).
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