Difference Between Book Value vs. Market Value

Main Difference

The main difference between Book Value and Market Value is that Book value of an asset grants its accounting value, which is nothing but the historical cost less accumulated depreciation/amortization, and the Market value of an asset stands for the actual market price of the asset, that traded in the market place.

Book Value vs. Market Value

The Accounting view or concept of recording the Price of an asset class is known as Book Value, and on the other side, the discounting which the buyer or investors give for a specific asset class known as Market value. The amount which the Investors will acquire (All assets minus all liabilities) while liquidation termed as the Book value. The Market price, whereas decided by the Investors or the traders who control the financial markets as a whole and value an asset based on the fundamentals of that particular asset class. The accountants do the price whether book value the price inclines to move within each quarter as per the accounting treatment, whereas the fluctuation in prices is very common in case of the market value. Only the fundamentals of the particular asset play an important role during the calculation of Book value, and financial market plays an important role in determining the market value. Depreciation is an integral part of the book value, whereas depreciation hardly plays any part in market value.

Comparison Chart

Book ValueMarket Value
Book Value is the value recorded in the books of the firm for any asset.Market Value is the maximum price at which an asset or security sold in the market.
Reflects
Firm’s equityCurrent market price
What is it?
It is the real worth of the asset or company.It is the highest estimated value of the asset or company.
Frequency of Fluctuations
InfrequentFrequent
Base of Calculation
Material or Tangible assets present with the company.Tangible and intangible assets, which the company have.

What is Book Value?

A property or asset’s book value is equal to its equity value or carrying amount on the balance sheet, and companies calculate it is netting the asset against its collected depreciation. Book value is also the net worth value of a company estimated as total assets minus intangible assets (patents, goodwill) and liabilities. For the primary outlay of an investment, book value may be net or gross of expenses like trading costs, sales taxes, service charges, and so on. While the book value of a property or asset may remain the same over time by accounting measures, the book value of a company conjointly can increase from the accumulation of earnings produced through asset use. Since a company’s book value shows the shareholding worth, comparing book value with a market value of the shares can assist as an effective valuation technique when trying to decide whether shares are fairly priced.

Uses of Book Value

  • It provides as the total value of the company’s assets that shareholders would theoretically receive if a company liquidated.
  • When comparing to the company’s market value, book value can indicate whether a stock is under- or overpriced.

What is Market Value?

Market value is the cost or rates an asset would bring in the marketplace. Market value is also commonly used to relate to the market capitalization of a publicly traded company and obtained by multiplying the number of its outstanding shares by the current share price. Market value is easiest to ascertain for exchange-traded instruments such as stocks and futures, since their market prices broadly disseminated and easily available but is a little more challenging to determine for over-the-counter instruments like fixed income securities. Despite that, the greatest difficulty in determining market value lies in estimating the value of non-cash assets like real estate property and businesses, which may require the use of real estate assessors and business valuation experts, respectively. A company’s market value is a good sign of investors’ ideas about its business prospects. Market value determined by the valuations or multiples accorded by investors to companies. The higher the estimates or valuations, the greater the market value.

Market value can vary a great deal over periods and substantially influenced by the business cycle. Market values fall during the bear markets that accompany recessions and rise during the bull markets that happen during economic expansions. Market value is also reliant on numerous other factors, such as the sector in which the company operates, its profitability, debt load, and the broad market environment.

Key Differences

  1. The value of property or assets or securities as indicated by the books of the firm is known as book value. Market value is the present value of the firm or any asset in the market on which it sold.
  2. Book value comes to the value of the firm’s capital. Conversely, the market value indicates the current market value of the company or an asset.
  3. In estimating book value, only tangible assets taken into consideration, but market value considers both tangible as well as intangible assets.
  4. Book Value is the real worth of an asset of the company, whereas market value is just a predicted value of the firm’s or asset’s worth in the market.
  5. When the book value is greater than the market value, there is profit, but if the book value is much less than the market value, there is a loss. However, if these two values coincide, there is a situation of no profit, no loss for the company.
  6. Book Value changes annually, but Market Value changes every next moment.

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