Book Value vs Market Value | Top Differences You Must Know!
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Book Value vs Market Value | Top Differences You Must Know!


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are going to learn a topic that is on book value versus the market value we
come across to this two concepts very frequently so let’s understand what
exactly this is all about book value and the market value are the basically the
key techniques that is used by the investors to value the asset classes and
those asset classes can be stocks or bonds so Book value is the value of the
we are talking about Book value is the value of the company according to its
balance sheet and on the other hand market value is the value of a stock or
a bond which is based on the traded price in the financial markets so though
the market value can be calculated at any point of time an investor gets to
know the book value in a company file its earning on quarterly basis
now book value of the asset is base is strictly based on the balance sheet or
books of the company so Book value is basically calculated I’ll just write
over here BV Book value is basically calculated by taking the difference
between thee asset minus the liabilities as simple as that
now this basically asset – liability is also known as what shareholders equity
or it is also known as the net worth and it can be derived by the accounting
equation which is asset is equal to bracket liability plus shareholders
equity right now let’s talk something about market value
now when we when we talk about market value market value of any asset is
assigned by the investors on that particular date that is that is based on
the current price of that asset traded in the financial market
so the market value of a company is calculated by multiplying the market
price of the share of the basically share of the company with the number of
outstanding shares okay it should be as simple as that so market value can be
can vary at any point of time and it can be more or less than the book value
let’s understand this whole topic with the help of an infographics let’s begin
the definition book value and the market value book value is the real net worth
or the real worth of the asset of the company but it’s in the book based on
the historical value so it is the actual worth of the asset of the company but in
case of market value it is defined as the maximum price the maximum price that you need to pay which an asset or security can be bought or sold in the
market see market value has a very thin sort of a difference there is a thin
line of difference and when we talk about book value it’s basically
historical values reflects is the second difference the book value reference
reflects the firms equity and over here market value as we all know it’s
basically the current market price which is going on so the current market price
is the definition or it’s it is what it reflects right the third is basis of
calculation what exactly is the parameter that is used for calculating
the book value in the market value book value is calculated by taking the
difference between assets and liabilities that’s what we just learned
and when we talk about market value market value of the company is basically
the number of shares of the company into the market price per share so that is what is that is what we discussed just
few minutes before frequency of the fluctuation Book value it happens
periodical intervals that is it is infrequent in nature stagnation is there
market value is very frequent market value fluctuates here and there and it’s
not going to be stagnant this is basically based on the historical value
book values and this keeps on changing based on the market prices what are the
measurement basis whatever the measurement drivers basically Book value of any asset is accounted in the balance sheet on historical cost or the
amortization cost or the fair value but when we talk about market value market
value reflects the fair value or the market value of an asset so as I told
you there is a very thin line of difference when we talk about this so
let’s discuss what other key differences between Book value and the market value
so let’s start and we’ll get to know something about this – you know nutshell
form now Book value is basically the value of
the of the asset that is reported in the balance sheet of the firm so and when we
talk about market value market values the current valuation of the firm or the
asset and the ongoing price of the share in the market on which it can be bought
or sold second book value it gives us the actual worth of the assets owned by
the company whereas you can say the market value is projected I’ll just
write for you projected value of the firms or the asset worth in the market
the third difference let’s get into it Book value is equal to the value of the
forms equity that’s what we learned firms equity and when we talk about
market value market value indicates D current market price or the current
market value of any firm or any asset next forth an investor can calculate the
book value of an asset when the company reports its earnings when the company
reports its earnings on quarterly basis whereas the market value it keeps on
changes or it keeps on changing every single moment fifth now Book value it
basically shows the actual cost okay or the acquisition cost of the assets
whereas the market value you can say on the other hand indicates the current
market trend so this are some of the key differences we have few more to go let’s
talk about the 6th one Book value is basically the accounting value remember
this word for book value it is basically the accounting value
of any asset and is less relevant this is less relevant at times when a company
is actually planning to sell of the assets in the market in comparison to
the heart market value reflects more accurate valuations of any assets during
so I will just write over here more accurate valuations right in comparison
to the book value while buying and selling of those assets now book value
of the asset seventh point book value of an asset is accounted in the balance
sheet on the historical cost so I’ll just write over here it is reported on
historical cost or amortized cost or the fair value got it but when we talk about
market value it reflects the fair value or the market value of any asset so
after discussing all this let me finally recap it recapitulate the whole thing
it’s finding conclusion market values versus the book value are widely used by
the investors to value any asset class comparing market value versus book value for the company indicates whether the company is undervalued or the overvalued condition so if the market value if you can say that if the o market value is
less than the book value it implies that the stock is trading at discount it is
stated at discount or vice versa and book value is the accounting value of
any asset and often it does not reflect the true market value at which an asset
can be bought or sold so market value provides more accurate current value as
it reflects the demand and supply of any asset so several multiple valuation
technique like P ratio PB ratio EV to EBITDA ratio use market value or the
book value as one of the variables so that’s it for this particular topic if
you have learned and enjoyed watching this video please like and comment on
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everyone Cheers

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