Book Value Of Equity And Market Value Of Equity
The market value of equity is also distinct from the book value of equity.
Book value of equity and market value of equity. Book value of equity also known as shareholder s equity is a firm s common equity that represents the amount available for distribution to shareholders. The market value of the company s equity reflects these decisions as well as investors collective assessment and expectations about the company s future cash flows generated by its positive net present value investment opportunities. Book value gives us the actual worth of the assets owned by the company whereas market value is the projected value of the firms or the assets worth in the market.
The book value of equity is equal to total assetsminus total liabilities preferred stocks and intangible assets. Book value is equal to the value of the firm s equity while market value indicates the current market value of any firm or any asset. The book value of equity is based on stockholders equity which is a line item on the company s balance sheet.
The price to book p b ratio is a popular way to compare market value and book value.