Formula to Calculate Market Share
Market share can be defined as the representation of the percentage of the market’s total revenue or of an industry which shall be earned by a particular firm over a specified period of time. Market share can be calculated using the below formula:
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For eg:
Source: Market Share Formula (wallstreetmojo.com)
Step by Step Calculation of Market Share
To calculate the market share follow the below steps.
- To calculate a firm’s market share, first of all, one needs to be clear about the time period, which shall be either a year, fiscal quarterFiscal QuarterThree consecutive months of any fiscal year used by the company to report its business is called a fiscal quarter. Public traded companies are vitally obligated to report specific information to the Securities and Exchange Commission about their quarterly performance.read more, or several years. Then the next step is to calculate the firm’s total revenue over that time period.
- The second last step would be to find out the total revenue of the firm’s industry. And finally, divide the firm’s total sales by its industry’s total revenue.
- Investors or any financial analyst can obtain the market share data from several independent sources, like the regulatory bodies or the trade groups, and sometimes from the firm itself.
Examples
Example #1
JBL has reported its gross revenue of US$ 30 million and the industry in which JBL operates, it has total gross revenue for the US $ 500 million. You have required to calculate the market share of the JBL inc.
Solution:
Use below given data for the calculation of the market share.
- Company’s Total Share: 30
- Industry Sales: 500
As we are given the company’s individual sales along with market share, we can use the above equation to calculate the market share of the company.
Calculation of market share can be done as follows:
Market Share = US$ 30 million / US$ 500 million
Market Share will be –
Market Share = 6%
Hence, the market share of the JBL is 6%.
Example #2
SAB tv operates in many of the different locations and is currently under review for a hostile takeover from Star Network. The reason being Star thinks that SAB tv’s market share is increasing. However, the finance research department had a different story to tell. They were of opining that & pictures are capturing the market share more than SAB tv and & pictures should be the target company to be taken over. The CFO of the company has asked to come up with market share both of these targets, and whosever share percentage is bigger will be targeted.
| Particulars | SAB TV | & Pictures | Market Sales |
|---|---|---|---|
| Quarter I | 10,00,000 | 15,00,000 | 1,25,00,000 |
| Quarter II | 10,50,000 | 9,80,000 | 1,01,50,000 |
| Quarter III | 8,70,000 | 6,50,000 | 76,00,000 |
| Quarter IV | 9,80,000 | 9,00,000 | 94,00,000 |
You are required to calculate yearly revenue for SAB tv, & pictures, and Market sales, along with percentage.
Solution:
We shall first calculate the total sales of both SAB tv and & pictures and Market sales per below:
Now, we can use the above equation to calculate market Share for SAB TV :
Market Share = 3900000 / 39650000
Market Share for Sab TV will be –
Market Share = 9.84%
Calculation of market Share for & Pictures can be done as follows:
Market Share = 4030000 / 39650000
Market Share for & Pictures will be –
Market Share = 10.16%
Hence, it appears that the statement made by the finance research department is correct as the market share of & pictures is more than SAB tv. It is advisable to target & pictures for a hostile takeover.
Example #3
A street analyst is trying to conduct top-down research, and he wants to select the company which has a market share of at least 20% in its industry. Below are some of the top performers stock in their industries:
| Particulars | Revenue | Industry Sales |
|---|---|---|
| Stock A | 23,45,678 | 3,00,40,078 |
| Stock B | 3,34,488 | 15,34,988 |
| Stock C | 13,34,567 | 3,35,26,771 |
| Stock D | 44,55,990 | 10,07,86,541 |
| Stock E | 1,10,11,011 | 5,07,81,109 |
| Stock F | 8,67,459 | 86,75,700 |
You are required to find out the stock that can be shortlisted based upon the criteria mentioned above.
Solution:
Calculation of Market Share for Stock A can be done as follows:
Market Share = 2345678 / 30040078
Market Share for Stock A will be –
Market Share = 7.81
Now, we can calculate market share using the above formula and arrive at the percentage respectively for all the stocks.
From the above table, it is quite clear that the street analyst will shortlist stock B and stock E, and the rest of the stocks will be drop down at this stage of screening.
Market Share Calculator
You can use this market share calculator.
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| Entire Market Revenue (Sales) | |
| Market Share Formula | |
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Relevance and Uses
Market share, which is big in percentage, is a strong indicator of business success, especially if that market share is trending upwards.
A big market share can boost up business and can also lead to price leadershipPrice LeadershipPrice leadership refers to a situation where the dominant firm sets up the price of goods or services in the market. This happens when there is no difference in the goods or services provided by different firms and customers don’t have a preference and choose the lowest price.read more in the market, whereas the competitors will be more likely to follow the company in terms of price points that shall be established by the leading firm. This situation mostly arises when the firm is the low-cost leader in that industry. However, a firm that offers goods at a lower price point not necessarily be the most successful one in finance of that industry. A smaller firm shall reap more profits by taking over a niche that is more profitable within that market.
If a firm attains quite a larger market share, it can be subject to rules and regulations, which includes anti-competition laws. Under these regulations, the government might not allow them to complete the proposed mergers on the harsh reasons that they may consequently excessive-high market share and henceforth a downfall in the competition in that industry.
Recommended Articles
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