Difference Between Book Value and Market Value

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Introduction
The book value is the price that an individual pays for an asset. Market value is the price that an individual can sell an asset. The book value does not change as long as the individual who bought the asset still owns it. If a person bought a car 10 years ago for 30,000$ then, the book value will be 30,000$ for the whole time. If a person sells that car for 10,000$, then that is the market value. Book values help people to track the profits or losses that they have made. The difference between the two values shows the profit that the person has made and it depends on the definitions and the implications.

Discussion
Definition
Book value refers to the amount that exists in the books of accounts and the financial documents. The book value is the difference between a firm’s total assets and total liabilities. This figure exists in the business plan. The book value also refers to the shareholders equity. If a company has 200 million dollars as the total assets while the liabilities are 50 million dollars, then the book value is 150 million dollars. The book value simply shows what value a company is worth after paying the debts and expenses. Market value is the price that a company has at a given time (Fama 1). It depends on the stock market. To get the market value, an individual would multiply the market price of shares by the total shares of a company. If a certain company has 700,000 shares outstanding and each share is 200$, then the market value of that company is 700,000X200= 140,000,000. When financial analysts talk about the value that a business has at a given time, they talk about its market value (Irs.gov np).

Implications

The book value is the accounting value. When stock investors buy or sell stock of a company, they determine the real book value that the auditors put forth. Market value has a greater implication and it shows the price that an individual has to pay to own a stake of a particular company. When the book value exceeds the market value, the company net worth is less than what the auditors had stated. This happens when the market is no longer confident in the company. The company loses value in the eyes of the market. People lose faith that the company is able to generate profits in the future. People do not believe that that company is who of the figure that it states in its books of accounts. Sometimes, the perceptions of the markets may be faulty and this is where a value investor comes in. The value investor tries to show that the market feelings and perceptions are wrong.
When the market value exceeds the book value, the company has a higher value in the eyes of the people. This hiked value may be due to the assets or the earning potential of the company. When both figures are equal, the market is indifferent on whether a company exceeds or does not exceed the figure in the books of accounts.

Conclusion

In conclusion, book value and market value are different figures that auditors use to value businesses. In businesses, book value is the difference between the assets and liabilities of a company. It refers to what results after a company has paid its expenses. Market value depends on the stock market and it is the value that a company gets at a certain time. Mathematically it is the total number of outstanding shares multiplied by the price of each share. It refers to the price that people would have to pay to own a stake in a particular company.

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