What Is the Market Price Per Share?
The market price per share of stock—usually termed simply "share price"— is the dollar amount that investors are willing to pay for one share of a company's stock. It has no specific relation to the value of the company's assets, such as book value per share does, which is based on the information from a company's balance sheet.
How to Calculate Stock Price
You actually don't have to calculate the current market price per share because it's readily available. It's the figure that appears when you go online and ask to see a company's "current share price." Just enter the company's stock symbol in your search engine—for example, AAPL for Apple— along with the phrase "share price" to determine the share price online as of any given date.
Most internet pages, including online brokerage sites, show current share price, and they also allow you to find the share price on any given past date. Some of the more popular sites include Yahoo Finance, Google Finance, Investopedia, and StockCharts.
How Share Price Is Arrived At
If you're hardcore and you want to do the math yourself, determining the market price per share of the stock goes something like this:
- Select the date for which you want to determine market price, then determine the company's net income as of that date. This information is typically found in quarterly and annual reports, but it's something else you can usually hunt up online.
- Subtract the dollar value of dividends the company has paid out. If the company's net income for that date is $1 million and the dividends paid were $200,000, you have a numerator of $800,000.
- Determine the number of outstanding shares. You can use either actual shares outstanding or the average over a period of time. This is your denominator. Not all internet stock market sites show the number of outstanding shares for each company, although many do. Otherwise, you can find the number of shares outstanding in the company's 10-K report: the less glossy, more detailed, and SEC-required version of the company's annual report.
- Divide the numerator by the denominator. If the denominator or outstanding shares is 50,000, this would work out to $800,000 divided by 50,000 for a value per share of stock of $16.
Market Price Per Share vs. Market Value
A related data point is the company's "market value"—the overall value that investors assign to a company on a given date. You can determine that value by multiplying the market price per share, in this case, $16, by the number of shares outstanding, which is 50,000, so you're back at $800,000.
The Effect of Trading Volume
Sellers and buyers have a direct effect on stock value, so market price per share can be fluid. The more interest there is in a stock, the more liquid that stock becomes. Liquidity or lack of it can drive prices up or down in short order. In many cases, it's a matter of supply and demand. When supply is greater than demand, prices fall. When demand is greater, they rise.
The Difference Between Market Price and Book Value
Investors new to the market sometimes confuse the stock's share price with the company's book value. The book value, also known as the net asset value, is determined by adding up the company's assets and subtracting its liabilities. Both values appear on the company's balance sheet and annual report. In theory, this value is what the company would be worth if it were broken up and sold and is a closer estimation of the company's true value.
In almost all cases, the book value will be significantly less than the market price because the market price takes into account both the company's current profitability and estimates of future profitability. It reflects not just the value of the company's assets, but an estimation of the company's ability to use those assets to earn a profit.
Share prices alone very rarely reflect a company's true value.
Please consult with a financial adviser for the most up-to-date advice and answers to any specific questions you might have. The information contained in this article is not intended as investment advice and it is not a substitute for investment advice.