Book Value vs. Market Value

Book Value vs. Market Value

Both Book Value and Market Value relate to the price of assets.

Book Value is the value of an asset at the moment of its purchase. Book value is the value of assets presented in the balance sheet. The book value of a company is the difference between value of its total assets and total liabilities - for example, if the value of all assets equals $10M and the value of all liabilities equals 9$, thus the book value of company equals $1M.

Book value is also called accounting value, because it is a value stated in the company's book and its mainly determined by the calculated by a company's auditors.

Market Value is the price of the asset which can be obtained on the market in case we would like to sell it. The market value of a company is a value of a company on the stock market, and it is calculated by multiplying a company's shares outstanding by its current market price. So for example, if the company has 1M shares and each single share is worth $30, than the market value of company equals $30M.

Market value is determined by stock market investors who buy and sell the stock. Thus, is the object of frequent fluctuations and may change as the result of various reasons, not necessarily related to the company's business and performance like market trends, herding behavior of investors, fashion or interrelation of various financial markets.

So, in summary:

Book value is the price paid for a particular asset while the market value is the current price at which you can sell an asset. The relation between market value and book value is used by investors to assess potential investment opportunities.

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