Book Value Of Equity Is Different From The Market Capitalisation

Net book value is the selling price of the asset while market price is the price at which it s ultimately sold.

Book value of equity is different from the market capitalisation. Market value is the company s worth based on the total value of its outstanding shares in the market which is its market capitalization. Ii market value greater than book value. Before the actual sale transaction goes through it s practically impossible to determine the difference between market value and book value.

Stock 2 has a lower market cap than its book. When book value equals market value the market sees no compelling reason to believe the company s assets are better or worse than what is stated on the balance sheet. Market capitalization value is nearly always greater than equity value since investors figure in factors such as a company s expected future earnings from growth and expansion.

Generally auditors request for evaluating the difference between market capitalization and book value. As you can see in the example above all assumptions or hardcodes are in blue font and all formulas are in black. Book value is calculated by taking the difference between assets and liabilities on the balance sheet.

As you can see market value and book value are two very different things. If the auditors find the result where market capitalization is more than their book value then they consider the amount of premium given by investors and if market capitalization is less than their book value then auditors consider the deterioration impairment issue for assets and goodwill. Understanding the difference between book value and market value is a simple yet fundamentally critical component of any attempt to analyze a company for investment.

The market value of an asset is assigned by the. After all when you invest in. Thus we can say that market value or market capitalization is a measure of the size of the company whereas book value is a measure of the accounting value of the company.

In other words investors believe that the company has excellent future prospects for growth expansion and increased profits that eventually can raise the book value of the company. The book value of an asset is strictly based on the balance sheet or books of the company. Market value tends to be greater than a company s book.