Formula to Calculate Market Share

Market share can represent the percentage of the market’s total revenue or industry that a particular firm shall earn over a specified period. Market share can be calculated using the below formula:

Market Share = Company’s Revenue (Sales)/Entire Market Revenue (Sales)

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Step by Step Calculation of Market Share

Examples

Example #1

JBL has reported its gross revenue of US$ 30 million, and the industry in which JBL operates has total gross revenue of US $ 500 million. You are required to calculate the market share of JBL inc.

  • To calculate a firm’s market share, one needs to be clear about the period, which shall be either a year, fiscal quarterFiscal QuarterThree consecutive months of any fiscal year used by the company to report its business is called a fiscal quarter. Public traded companies are vitally obligated to report specific information to the Securities and Exchange Commission about their quarterly performance.read more, or several years. Then the next step is to calculate the firm’s total revenue over that period. The second last step would be to find out the total revenue of the firm’s industry. And finally, divide the firm’s total sales by its industry’s total revenue. Investors or any financial analyst can obtain the market share data from several independent sources, like the regulatory bodies or the trade groups, and sometimes from the firm itself.

Solution:

Use the below-given data for the calculation of the market share.

  • Company’s Total Share: 30Industry Sales: 500

As we are given the company’s sales and market share, we can use the above equation to calculate the company’s market share.

Calculation of market share can be done as follows:

Market Share = US$ 30 million / US$ 500 million

Market Share will be –

Market Share = 6%

Hence, the market share of the JBL is 6%.

Example #2

SAB tv operates in many different locations and is currently under review for a hostile takeoverHostile TakeoverA hostile takeover is a process where a company acquires another company against the will of its management.read more from Star Network. The reason being Star thinks that SAB tv’s market share is increasing. However, the finance research department had a different story to tell. They were of the opening that & pictures are capturing the market share more than SAB tv and & pictures should be the target company to be taken over. The company’s CFO has asked to develop market share for both of these targets, and whoever share percentage is bigger will be targeted.

You are required to calculate yearly revenue for SAB tv, & pictures, and Market sales, along with percentage.

We shall first calculate the total sales of both SAB tv and & pictures and Market sales below:

Now, we can use the above equation to calculate the market Share for SAB TV:

Market Share = 3900000 / 39650000

Market Share for Sab TV will be –

Market Share = 9.84%

Calculation of market Share for & Pictures can be done as follows:

Market Share = 4030000 / 39650000

Market Share for & Pictures will be –

Market Share = 10.16%

Hence, it appears that the statement made by the finance research department is correct as the market share of & pictures is more than SAB tv. It is advisable to target & pictures for a hostile takeover.

Example #3

A street analyst is trying to conduct top-down research, and he wants to select the company which has a market share of at least 20% in its industry. Below are some of the top performer’s stocks in their industries:

You must find out the stock that can be shortlisted based on the abovementioned criteria.

Calculation of Market Share for Stock A can be done as follows:

Market Share = 2345678 / 30040078

Market Share for Stock A will be –

Market Share = 7.81

Now, we can calculate market share using the above formula and arrive at the percentage respectively for all the stocks.

From the above table, it is clear that the street analyst will shortlist stocks B and E, and the rest of the stocks will be dropped down at this stage of screening.

Market Share Calculator

You can use this market share calculator.

Relevance and Uses

Market share, which is big in percentage, is a strong indicator of business success, especially if that market share is trending upwards.

A big market share can boost business and lead to price leadershipPrice LeadershipPrice leadership refers to a situation where the dominant firm sets up the price of goods or services in the market. This happens when there is no difference in the goods or services provided by different firms and customers don’t have a preference and choose the lowest price.read more in the market, whereas the competitors will be more likely to follow the company in terms of price points that the leading firm shall establish. This situation mostly arises when the firm is the low-cost leader in that industry. However, a firm that offers goods at a lower price point may notPrice PointA price point (PP) is a selling price that a manufacturer or retailer recommends for its product or service to remain competitive in the market while also making a profit.read more necessarily be the most successful one in finance of that industry. A smaller firm shall reap more profits by taking over a more profitable niche within that market.

If a firm attains quite a larger market share, it can be subject to rules and regulations, including anti-competition laws. Under these regulations, the government might not allow them to complete the proposed mergers for the harsh reasons that they may consequently have excessive-high market share and subsequently a downfall in the competition in that industry.

This article is a guide to Market Share Formula. We discuss calculating market share using its formula, practical examples, and a downloadable excel template. You can learn more about financial analysis from the following articles –

  • Investment vs. SpeculationMarginal Product Formula CalculationFormula of Dividends per ShareFormula of Earnings Per ShareNominal Value of Share