Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail
Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail

Market Share

What it is:

Market share refers to a company's portion of sales within the entire market in which it operates. This metric indicates a company's size within its market.

How it works (Example):

The formula for market share is:

Market Share = (Particular Company's Sales Revenue in Time Period X) / (Relevant Market's Total Sales Revenue in Time Period X) 

Let's assume Company XYZ sells $50 million a year in widgets. If the total amount of widgets sold from all companies within the market totals $100 million, then Company XYZ has a market share equal to 50%.

Market Share = ($50 million) / ($100 million)

Why it Matters:

As the market for a good or service grows, many analysts view the maintenance or increase in market share as a sign of a company's competitiveness. Increases in market share might come from innovation, broadening demographic appeal, lower prices, or simply advertising.

Sometimes a company garners too much market share and becomes part of an oligopoly or even becomes a monopoly. If this is the case, it could violate anti-trust laws and be ordered to divest assets or take some other action to increase competition.

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