Calculating market capitalization using firm valuation metrics

Office Max

The market value of a firm is the value that investors place on the firm, as reflected by the prices of its shares on the open market. The market value of the firm is therefore calculated as the value of an individual share multiplied by the number of shares outstanding. The book value, by contrast, is the value at which an asset is carried on the balance sheet, or in this case the entire firm (Investopedia, 2012). The book value of a company is calculated as the total assets minus the liabilities, which reflect the value of the company that is owed to other parties. What is left is the value that is attributable to the owners of the company, or the shareholders' equity section of the balance sheet.

The current market cap for Office Max is $476.44 million, based on a share price of $5.50, which is the closing price on August 21, 2012 and 86.63 million shares outstanding (MSN Moneycentral, 2012).

The firm's book value can be calculated from its latest SEC filing. In this case, that filing is the Q2 filing for fiscal year 2012. This quarter ended June 30, 2012, and the results were released on August 2, 2012.

The formula for book value is the total assets less the total liabilities. According to the balance sheet for the Q2 financial statements, the total assets are $3,983,393 and the total liabilities are $3,390,184. This leaves the company with a book value of $593,209.

There is also another way to calculate the market value, using the average share price over the past 52 weeks. The closing share prices for the past 52 weeks can be found on MSN Moneycentral. These figures can be compiled in a spreadsheet and then the average taken. The result is as follows:

Close Price

5.5

5.64

5.16

4.92

4.49

4.55

4.78

5.27

5.06

4.78

4.49

4.47

4.45

4.92

4.75

5.06

4.4

4.87

4.71

4.87

5.35

5.72

5.86

5.66

5.16

5.2

5.68

5.75

5.62

5.67

6.04

5.81

4.73

4.48

4.54

4.66

4.46

5.02

4.74

4.09

4.64

5.61

5.1

5.4

5.31

4.98

4.6

4.85

4.73

5.74

5.44

5.41

5.061346154

Using this average share price of $5.0613 and the shares outstanding average of 85,395,000, the market value of OfficeMax would be $432.21 million.

Works Cited:

Investopedia. (2012). Book value definition. Investopedia. Retrieved August 22, 2012 from http://www.investopedia.com/terms/b/bookvalue.asp