B E N C H M A R K I N T E R N AT I O N A L
THE DIFFERENCE BETWEEN ECONOMIC VALUE AND MARKET VALUE
BUSINESS: T HE DI FFERENCE BE T WEEN EC ONOMIC VALUE A ND M A RK ET VALUE
Businesses frequently use both economic value and market value calculations as measurements of success or to help evaluate performance. These are two different metrics that each employ different criteria to make calculations.
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ECONOMIC VALUE
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Economic value is defined as the maximum price a customer is willing to pay. This is therefore determined in part by the value the product, service or company adds to the consumer. Therefore, economic value can be higher than market value, as the perceived value includes intangible elements.
MARKET VALUE Market value is based on the vagaries of supply and demand. It can be difficult to accurately estimate market value for companies that are not publicly listed. Privately owned companies are valued based on a variety of factors, which include financial records, performance, and predicted sales.
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P U B L I C LY L I S T E D C O M PA N I E S H AV E A M A R K E T V A L U E EQUAL TO THEIR INDIVIDUAL S H A R E P R I C E M U LT I P L I E D BY THE NUMBER OF AV A I L A B L E S H A R E S . I T C A N TA K E M O N T H S O F C A R E F U L A N A LYS I S TO A R R I V E AT A FA I R A N D AC C U R AT E M A R K E T VA LU E F O R A P R I VAT E LY OWNED COMPANY.
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You can learn more about calculating the value of a business by visiting the blog of Benchmark International.