Book Value Lower Than Market Value

The widespread observation of market value lower than book value thus indicates an unusual situation that warrants investigation.

Book value lower than market value. Basically if a company s market value is significantly stronger than its book value it s a bull market scenario. Book value is often lower than the current market value of a firm s shares because it s based on historical accounting figures. Keep in mind that the market value of an asset could change for better or worse during the course of its useful life.

Book value is higher than market value. One cause of a corporation s market value being greater than its book value is the accountant s cost principle. The market value of most stocks is well above the book value.

When that happens it usually indicates that the market has. Some financial institutions banks for instance currently have a market value and book value that are close. Some analysts compare these figures and believe that if the ratio of market value to book value is low it may be a good buy.

If the opposite holds true and book value and market value are more tightly. When the book value is greater than the market value there is profit but if the book value is less than the market value there is a loss. Where market value is below book value should invoke accounting standards that require the recalibration and review of valuation models to ensure that valuations are not based on special assumptions.

There are situations when the market value of a fixed asset is much higher than book value such as when the market value of an office building skyrockets due to increased demand. The asset s book value is equal to its market value. Sometimes it is astronomically above the book value.

If an item is not listed on the balance sheet as an asset it will not be included in a corporation s book. However if these two values coincide there is a. Book value greater than market value it is unusual for a company to trade at a market value that is lower than its book valuation.