Market share is determined by taking a company’s sales for a specific time frame and dividing it by the total sales of the industry in that same time frame. This figure helps to provide a rough estimate of how big a company is compared to its market and rivals. The company that holds the largest market share in an industry is considered the market leader.
How to Calculate Market Share
Company’s market shares refer to the percentage of total sales it holds within its specific market or industry. To figure out a company’s market share, start by deciding on the time frame you want to look at. This could be a quarter, a year, or even several years.
After that, calculate the total sales of the company during that time frame. Then, determine the overall sales for the entire industry the company is part of. Lastly, divide the company’s total revenue by the total sales of its industry.
For instance, if a U.S. company sold $100 million in tractors last year within the country, and the overall tractor sales in the U.S. were $200 million, then the company’s market shares would be 50%.
Market shares calculations are typically performed for specific countries or regions, like North America or Canada. Investors can find market shares information from various independent sources, including trade associations and regulatory agencies, and often directly from the company; however, some sectors are more challenging to measure accurately than others. Additionally, it’s generally easier to access sales data for public companies compared to private ones.
Calculating market shares gets trickier when companies aren’t just focused on one industry and instead operate at the crossroads, which is pretty common for major tech firms over the past twenty years. In these situations, market share is determined for each product rather than for the company as a whole.
Formula of Market Share
Market Share = Total Industry Sales / Total Company Sales
Conclusion
Market shares refer to the portion of total industry sales that a specific company has achieved, acting as a measure of its competitiveness. When market share increases, it can suggest to investors that the company is a good investment, whereas a decrease might indicate potential issues.