Mark To Management
Categories: Accounting, Company Management
When an accountant produces a firm’s financial statements, they have to include an estimate of what each of the company’s assets is worth. Sometimes, that process is easy. The company holds 500,000 shares of its own stock. Shares are currently trading at $10 a piece on the NYSE. Those holdings are therefore worth $5 million. Pretty easy math.
But sometimes it gets more complicated. If the company has an asset that doesn’t have a continuous, liquid market, it might be hard to know the current value.
Your company's involved in drilling operations, and during one project, it uncovered a humanoid skull dating back 250,000 years. It's an amazing find...the kind of thing the press labels "priceless." But, as the accountant, you can't call it priceless. You have to assign it some value so you can get done with these stupid financial statements and start your vacation.
There are several acceptable methods for determining value in these hazier situations. Mark-to-management represents one of these.
The process attempts to determine a fair market value for an item under normal conditions. Essentially, it lets the company management determine what this amount should be.
So, in your case, the corporate bigwigs get together, look at some graphs, and sit through some presentation about recent sales of human fossils and the general museum market. Then they make a determination. It's an educated guess...but essentially, in a mark-to-management situation, the asset is worth whatever the bosses say it's worth.
Related or Semi-related Video
Finance: What is mark to market?2 Views
Finance a la shmoop what is mark-to-market?
alright well Google was private for a long time before it went public public [Google timeline appears]
mutual funds bought the shares of the company when it was private, the company
did a few later stage B C and D rounds before going public in 2004 and each
iteration those subsequent rounds valued the company more highly so a mutual fund
invested say 20 million dollars in the B round they would have seen the C round
done at maybe double the valuation and while that mutual fund would then
mark to market or mark up their twenty million dollar investment to now be
worth forty million dollars even though the stock of goog was not yet publicly
traded and then it came along the D round which was done at triple the [D round investment appears]
valuation of the C round so then those shares of goog would have to be again
marked up or marked to the new current market valuation which was three times
the previous rounds valuation of 40 million aka a hundred twenty million
bucks today eventually the company did go public and there was no longer need [Google stock price rises on graph]
to mark its value to the market because well the market valued it basically
every second of the trading day if you want to learn more about all this stuff
well then you can just you know google it