It's important for investors to know how to calculate the market price per share. This knowledge is important in order to determine whether stocks are being sold at a fair price.
Continue ReadingChoose a Date
The first step is determining which date to use in order to perform calculations. It makes sense to choose a date that's recent. Outdated data won't provide a good indication of the current market price. Keep in mind that there's no data for holidays and weekends. When one is researching historical data about a company's stock value, the library is a good place to search for this information if old company reports can't be found or aren't available.
Research the Stock Price
Look over the company's reports in order to find the price of the stock on the date that was chosen. Companies have annual and quarterly reports with this information, according to The Balance.
Determine Whether Dividends Were Paid
In order to find the numerator of the equation, it's important to determine whether dividends were paid. In most cases, they'll have been paid. Subtract the amount of the dividend from the price of the stock. The dividend amount can be found alongside the price of the stock. When looking up the price of the stock, make a notation as to the dividend amount. If dividends were not paid out for a particular stock, then the above total stock price is used as the numerator.
Figure Out the Total Number of Common Shares
Now that the equation has a numerator, it needs a denominator in order to perform the math. The denominator is determined by figuring out the total number of common shares that a company had on the date chosen above. Again, turn to the company's annual report for that year, or search the company's quarterly report. Both of these reports should have the needed information. The number of common shares found is the denominator.
Divide
This step is where that high school algebra comes in handy. Divide the numerator by the denominator to find the answer to what the market price per share of a certain stock is. This information is important because it helps investors know a stock isn't priced too high when they're considering buying it, and that a stock they're selling isn't priced too low when they want to sell, according to the Accounting Tools website. It's the most accurate information as to the current value of a stock.
An investor cannot just rely on the listed book value of the stock, since that's different than the market price. The book value of a company stock is determined by the total equity that a particular company has. It's determined by subtracting the company's liabilities from its assets. The market value is used to determine the value of a stock after profits and losses are taken into account. The book value is the value of the business, according to the company's financial records and statements, while the market value is the value of the company according to what the stock market shows, and is therefore much more beneficial and useful to the stock investor.
Learn more about Financial Calculations