– when an industry or market is described to be ‘worth an estimated x dollars’ what does that actually mean?
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Usually, they’re reporting on annual sales revenue for that sector, eg. is they report that the US banana market is worth $4b that means consumers buy $4b worth of bananas each year.
If you could magically fulfill at the demand in the market at the market price, you would collect X in profit. Essentially, it’s the sales revenue for that market.
Of course, magic isn’t real, so it’s also important to know how much it would actually *cost* to fulfill at that demand. Your profits would then be the initial revenue number, minus these costs. The profits in a small market might be much higher than the profits in a big market.
So these absolute market size calculations are maybe not the best for investment decisions, but they can still be useful for thinking about the economy and economic policy. If the market for VR headsets is going to eventually be $1 trillion (just making up a big number), it’s possible that nobody really profits, but that’s still an enormous amount of labor, capital, marketing, and general social buy-in.
Also for non public businesses the value is often caluclated as the revenue less debts and then times a multiple. Usually like 4 or 5.
Im not an expert here this is what a private equity gentleman told.me when I bought my business.
Essentially the fair value is the price of the actual profit and then the expected esrnings in the next few years.
If a business takes in 150k gross but has 100k debts or expenses then 50k times 5 might value the business at 250k, Which gives you and idea that you could potentially grow or pay for the business in x time then see a return on investment.
Truth be told, it’s something of an ambiguous statement.
Most often, it is used to describe the total market for something. That is, how much of that something IS sold or COULD BE sold over some time period.
Even within a sophisticated corporation, it’s a good idea to ask precisely what someone is claiming when they describe a total market.
It refers to the actual size of the opportunity for a particular product or solution. As an example, the global automotive manufacturing market was worth about 2.86 trillion U.S. dollars in 2021. The market is projected to grow to some 2.95 trillion U.S. dollars in 2022. This growth is a slow recovery, still under the industry’s 2019 market size.
When they say an industry or market is “worth an estimated x dollars,” it’s like saying, “All the things that companies sell in that industry or market add up to a lot of money.” They figure out this amount by adding up how much people pay for all the stuff or services in that industry, like toys, cars, or phones. So, it’s like a big pile of money that all those things make together.
When people say an industry or market is “worth an estimated x dollars,” it’s like saying, “All the things related to that industry or market, if you add up their prices, would be around x dollars.”
Imagine you have a big basket of different kinds of fruit. Each fruit has a price tag. If you add up all those price tags, you’ll know how much the basket of fruit is worth. That’s a bit like how they figure out the worth of an industry or market.
For example, if we’re talking about the video game industry being worth $100 billion, it means if you add up all the money from selling video games, consoles, and related stuff, it’s around $100 billion in total. It’s just a way to give us an idea of how big or valuable that industry is.
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