The Difference Between Market Value And Book Value











The book value of equity or called "carrying value" is an inaccurate assessment of the actual value of the firm's equity that why investors do not pay for the equity with the book value of equity.
The total market value of a firm's equity equals the number of shares outstanding times the company's market price per share, referred to as the firm's market capitalization.
The market value of a share does not depend on the historical cost of the firm's assets; instead, it depends on what investors expect those assets to produce in the future.
The book value of equity can be negative if liabilities exceed assets, and that a negative book value of equity is not necessarily an indication of poor performance because some companies might be able to borrow in excess of the book value of their assets as creditors recognize that their market value of the assets is far higher.
Thus, the ratio of a firm's market capitalization to the book value of shareholders' equity is as follows;
Market to book ratio = Market Value of Equity/Book Value of Equity
It is one of many financial ratios used to evaluate a firm.
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Create Date : 16 กุมภาพันธ์ 2560
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