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Value

Market value is defined as the market value of the invested capital in the business. According to the theoretical principle of parity between assets and liabilities, the value of invested capital must be equal to the value of the business as an operating entity. Market value is used because it is considered as the most current and most appropriate representation of the actual value.

The invested capital in the business is the one which is invested for a profit. It consists of equity contributed by shareholders, and loans granted to the business at an interest, which is called debt. There can also be minority interests owned by other companies in the subsidiaries of the company. Some liabilities are not taken into account, such as accounts payable to suppliers if the suppliers do not charge interest.

The value of the business is calculated as follows: Business value = market capitalization + net debt + minority interests + provisions – associated businesses.

Theoretically, we should calculate debt at market value, but it is not always possible. We therefore use its book value, which usually does not make a major difference.