In accounting terms, the fair market value of a stock, or any other property or investment, is the amount that you could get for each share in a transaction where both parties were fully aware of all the facts regarding the deal. Another term often used to describe fair value is "what the market will bear." A number of variables affect the value of stocks, including current market prices and various discounts.
When published values are not readily available, you often need to use the fair market value to determine the price of a stock or the value of current portfolio holdings. According to the U.S. Securities and Exchange Commission (SEC), a company's board of directors is expected to use good faith when determining its stock value when market quotes are not readily apparent. The provisions for the trust-based fair market value were implemented in the Investment Company Act of 1940.
Most publicly traded companies can easily provide a stock market fair value for their shares based on the stock market prices at any given time. The daily value for stocks is determined by an average of the highest and lowest selling price that occurred on that day. Companies may determine the fair value by averaging the price of their shares over several days or weeks, particularly if trading is significantly lower than usual on any given day.
When shares in a company's stock have not experienced trades for a considerable amount of time, the fair market value may be determined by assessing the total value of the company as a whole and dividing that by the number of shares of stock held by shareholders. The company's value may include just profits or they could combine revenue and profits. Total assets held by a company are the most reliable source of determining overall value, according to Fairmark. The book value of a business may not be the most reliable figure on which to base value because it often doesn't take into consideration intangible assets. Book value is determined by subtracting liabilities from assets.
Standards and discounts
Federal regulations allow you to discount your stock under certain circumstances. When your stock has no market through which you can determine a fair market price, you can reduce the last known price of the stock to spur sales. Discounts for large parcels of stock shares also are allowed if selling the whole block invokes a significant barrier to a successful sale. Blockage discounts usually occur when there is a ready market for the stocks.