Market value

What it means

Market value is the price at which an asset would change hands between informed, independent parties under normal market conditions, with neither party under pressure. It expresses what the asset would really fetch if offered on the market, not what the company once paid for it.

The concept is used in many areas: business valuations, contributions in kind, insurance, secured lending and checking whether a related-party transaction was priced correctly. Different rules use similar but not entirely identical terms.

Tax law speaks mainly of the usual market price and the arm's length price, accounting of fair value and expert reports of the general value of property. In every case the aim is to capture the value a functioning market would set.

How it works in practice

The market value of property, machinery or whole businesses is often determined by a court-appointed expert using the comparative, income or cost approach. For a non-cash contribution to a company, the law expressly requires an expert valuation so that registered capital is not overstated.

In transactions between related parties, such as between a shareholder and their company or within a group, the price is compared with what independent parties would have agreed. This is the essence of transfer pricing, and the tax authority may adjust deviations.

For loans secured by property, banks rely on the market value set by their own or an approved valuer. The loan amount then depends on its ratio to that value, so the valuation directly affects how much the company can borrow.

What to watch out for

Market value changes over time and depends on market conditions. A valuation from several years ago may be out of date, especially for property and businesses in cyclical sectors. For important decisions it is therefore better to work with a current valuation.

Different methods can produce different results, and for illiquid assets there is no single precise market price. What matters is that the chosen approach is justified, consistent and supported by data that will stand up in an audit or a dispute.