- Valuation Basics
- Discounted Cash Flows
- Going Concern concept
- Dividend Discount Model (DDM)
- Gordon Growth Model
- Gordon Growth Model Formula
- Discounted Cash Flow Analysis (DCF)
- Free Cash Flow to Firm (FCFF)
- Free Cash Flow to Equity (FCFE)
- Terminal Value
- Cost of Equity
- CAPM Beta
- Calculate Beta Coefficient
- Market Risk Premium
- Risk Premium formula
- Weighted Average Cost of Capital (WACC)
- Security Market Line (SML)
- Systematic Risk vs Unsystematic risk
- Free Cash Flow (FCF)
- Free Cash Flow Yield (FCFY)
- Mistakes in DCF
- Treasury Stock Method
- CAPM Formula
- Cash Flow vs Free Cash Flow
- Business Risk vs Financial risk
- Business Risk
- Financial Risk
- Valuation Multiples
- Equity Value vs Enterprise Value
- Trading Multiples
- Comparable Company Analysis
- Transaction Multiples
- (Price Earning Ratio (P/E)
- PE Ratio formula
- Price to Cash Flow (P/CF)
- Price to Book Value Ratio (P/B)
- Price To Book Value formula
- Price Earning Growth Ratio (PEG)
- Trailing PE vs Forward PE
- Forward PE
- EV to EBITDA Multiple
- EV to EBIT Ratio
- EV to Sales Ratio
- EV to Assets
- Other Valuation Tools
- Valuation Interview Prep
Book Value vs Market Value Differences
Book value and Market value are key techniques, used by investors to value asset classes (stocks or bonds). Book value is the value of the company according to its balance sheet. Market value is the value of a stock or a bond, based on the traded prices in the financial markets. Though the market value can be calculated at any point in time, an investor gets to know the book value when a company files it’s earning on a quarterly basis.
- Book value of an asset is strictly based on the balance sheet or “Books” of the company. Book value is calculated by taking the difference between assets and liabilities on the balance sheet. It is also known as Shareholders equity or net worth and can be derived from the accounting equation assets= liabilities+ shareholder’s equity.
- Market value of an asset is assigned by the investors on that particular date i.e. based on the current price of that asset traded in the financial markets. The market value of a company is calculated by multiplying the market price per share of the company with the number of outstanding shares. Market value can vary and at any point in time, it can be more or less than book value.
Book Value vs Market Value Infographics
Here we provide you with the top 5 differences between Book Value vs Market Value of equity
Key Differences between Book Value vs Market Value of Equity
Let us have a look at the key differences between book value vs market value:
- Book value is the value of an asset reported in the balance sheet of the firm. Market Value is the current valuation of the firm or assets (the ongoing price of the share) in the market on which it can be bought or sold.
- Book value gives us the actual worth of the assets owned by the company whereas Market value is the projected value of the firm’s or the assets worth in the market.
- 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.
- An investor can calculate the book value of an asset when the company reports its earnings on a quarterly basis whereas Market Value changes every single moment.
- Book value shows the actual cost or acquisition cost of the asset whereas market value indicates the current market trends.
- Book value is the accounting value of an asset and is less relevant at times when a company is actually planning to sell that asset in the market; in comparison market value reflects more accurate valuation of an asset during buying and selling of that asset.
- Book value of an asset is accounted in the balance sheet based on historical cost, amortized cost or fair value. Market value reflects the fair value or market value of an asset.
Book Value vs Market Value of equity – Head to Head Comparison
Basis of Comparison Book Value Market Value
|Meaning||Book value is the real worth of the assets of the company. It is the actual worth of the asset of the company.||Market value is defined as the maximum price at which an asset or security can be bought or sold in the market.|
|Reflects||The firm’s equity.||The current market price.|
|Basis of Calculation||Book value is calculated by taking the difference between assets and liabilities in the balance sheet.||The market value of a company is calculated by multiplying the market price per share of the company with the number of outstanding shares.|
|Frequency of Fluctuations||Happens at periodical intervals i.e. infrequent.||Very frequent. Market value fluctuates every now and then.|
|Measurement Bases||Book value of an asset is accounted in the balance sheet based on historical cost, amortized cost or fair value||Market value reflects the fair value or market value of an asset.|
Book value vs Market Value – Conclusion
- Market Value vs Book Value of equity are widely used by investors to value an asset class. Comparing market value vs book value for a company indicates whether the company is undervalued or overvalued. If the market value is less than the book value it implies the stock is trading at a discount and vice versa.
- Book value is the accounting value of an asset and often does not reflect the true market value at which an asset can be bought or sold. Market value provides more accurate current value as it reflects the demand and supply of an asset. Several multiple valuation techniques like (PE ratio, PB ratio, EV to EBITDA Ratio) use market value or the book value as one of the variables.
This has a been a guide to the top differences between Book Value vs Market Value of equity. Here we also discuss the book value and market value differences with examples, infographics, and comparison table. You may also have a look at the following articles for gaining further knowledge in Accounting –