© 2002 Hodak Value Advisors
The market value of our company (MV) is the value assigned to our debt and equity by our investors. This value fluctuates primarily with investor expectations of our future profitability. We see this effect in the ups and downs of our stock price:
MV = Debt + Number of shares x Stock price ($ per share)
When investors believe our prospects are enhanced, they bid up the price of our shares, which translates into higher market value. If investors lose confidence in our ability to grow or sustain profitability, we'd see our share price and market value drop.
In any given year, much of what drives our market value is beyond the control of management. Over time, however, our good and bad luck tend to cancel each other out, and the results of our decisions and hard work figure more prominently in our market value.