Market share represents how much of its market a firm has; it can be measured using the firm's revenue or sales volume for that market. To calculate a firm's market share using sales volume, divide its sales volume by the entire market's sales volume for a specific time period. To calculate a firm's market share using its revenue for a time period, divide its revenue by the total revenue generated in that market. Defining the scope of a market the company competes in is integral to calculating its market share. A market can be broad and inclusive, or narrow and focused, depending upon how many competitors an investor wants to compare.
Using Sales Volume
Identify the product and time period for which you will measure sales volume -- a firm's brand of diet soda, for example. Review the firm's income statement for the time period. That income statement will be filed with the Securities and Exchange Commission and will show how many units of diet soda the firm sold. Record its sales volume in a computer spreadsheet.
Define the market for which you will measure the firm's volume by identifying its competitors. If the firm is selling diet soda, you could limit its competitors to other firms that sell diet soda, or you could be so look at the market of every beverage-making firm. Consult each competitor's income statement, and record its sales volume.
Calculate the firm's market share by dividing its sales volume by the total sales volume for the market you have identified, representing the quotient as a percentage. For example, if the firm sold 100 units of diet soda, and if the entire market comprises 2,000 units of diet soda, the firm's market share is 100 divided by 2,000, or 5 percent.
Define the scope of the market for which you will calculate the firm's share. Identify each of the firm's competitors based upon a product that each sells, such as cherry-flavored soda, or based upon each competitor's total product line, such as beverages. Record each firm's revenue, found on its income statement, in a computer spreadsheet.
Identify the product -- or product line -- whose revenue stream you will use to calculate the firm's market share. Consult the firm's income statement, and identify how much revenue its sales from a particular product generated, then record that sum in a computer spreadsheet. Ensure that each revenue stream you have recorded accurately reflects the metric you used to define the market.
Divide the firm's revenue by the total revenue generated in the market you have identified. The quotient represents the firm's market share, which is represented as a percentage. If the market for cherry-flavored soda is worth $500,000 per fiscal year, for example, and the firm's revenue is worth $100,000, its market share is 20 percent.
- For a more informed perspective on a firm's position in a market, calculate its market share using both its sales volume and revenue. Also, consider defining a broader or more narrow market to compare it to different types of competition.
Items you will need
- SEC filings
- Income statement
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