Book Value Of Equity Is Different From The Market Capitalisation

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.

Book value of equity is different from the market capitalisation. 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. This indicates that the market is assigning a higher value to the company and its assets. Book value is calculated by taking the difference between assets and liabilities on the balance sheet.

Ii market value greater than book value. As you can see in the example above all assumptions or hardcodes are in blue font and all formulas are in black. 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.

Stock 1 has a high market capitalization relative to its net book value of assets so its price to book ratio is 3 9x. 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. Generally auditors request for evaluating the difference between market capitalization and book value.

Market value is the company s worth based on the total value of its outstanding shares in the market which is its market capitalization. The book value of an asset is strictly based on the balance sheet or books of the company. When the market value of equity is less than book value value investors would interpret it as an opportunity to invest.

The market value of an asset is assigned by the. Market value of equity less than book value of equity. Net book value is the selling price of the asset while market price is the price at which it s ultimately sold.

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. Market value tends to be greater than a company s book. Before the actual sale transaction goes through it s practically impossible to determine the difference between market value and book value.