Relative market share profit is one of the key indicators to be used when selecting a stock to invest in. The market share numbers is simply a percentage that shows how much of the total sales in a sector or market a company makes. For example in the commodities market lets assume the global annual sales of raw sugar cane are $200 million. If Company A has annual sugar cane sales of $55 million then its global market share is 27.5% (55m / 200m).
Market share is a good indicator of a company's progress if measured over a period of time. Quite often you can plot together the market share over the last few years from information sourced from annual reports, industry publications of market research available on the internet. By looking at the relative market share over a period of time, alongside some other key performance indicators such as profitability can be invaluable to achieve smart stock investing.
A company may have aimed to increase its market share, which is obviously good however to achieve this it may have to reduced the prices it charges. By reducing the profit margins to increase market share the company may have overall reduced its profit. The full effect of this can only be measured by performing relative market share profit analysis.
Such equations and ratios should however be considered alongside strategy information. Many successful companies are highly successful despite having very small market shares. A good example is the car manufacturer Ferrari. Their market share of the entire car market globally is well under 1% however they only target a very small niche of customers, the very rich. By targeting their product to this niche they are able to dominate it and post excellent profits, despite their tiny market share.
Market share, in strategic management and marketing, is the percentage or proportion of the total available market or industry sector that a company operates in. Market share is one of the fundamental analysis tools that many brokers use to pick stocks.
Market share can be expressed as a company's sales (revenue) in a particular industry or sector divided by the total sales revenue available in that market. Alternatively it can also be expressed as a company's unit sales volume divided by the total volume of units sold in that market (non monetary terms).
Relative market share profit is an extension of market share that takes the market share of a company (in percentage terms) and multiplies it by the revenue of that firm.
The figures required to calculate the relative market share profit of a company can usually be sourced from annual reports or in articles or market research that has been carried out. The internet is probably the best place to start this type of research.
Both increasing market share and profit are two of the most important objectives used in business. However they are not linked. Sometime to increase their market share, a company may have to forgo profits by reducing its prices. Conversely focussing on a smaller sector of the market may allow the company to charge premium prices and increase margins and profits.
When relative market share profit calculations are used as an analysis tool to aid stock picking for investing in the equity markets, they can provide more insight to a company and its competitors than many other ratios.
Other investment ratios that are of use to stock investors include return on investment (ROI), return on assets (ROA), and profit margin (gross and net).
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