In: Accounting
The most important reason for this difference is the nature of book value and market value. | ||||
See the Book value of equity shareholder's are calculated based on the figures shown in the balance sheet(Net Assets / Shareholder's equity) | ||||
However the market value of the company is determined is decided by the demand and supply forces of the market. | ||||
Hence it could be said that the basic nature of Book Value and Market value is different as the former is purely based on the book figures | ||||
Whereas the latter is based on the decision of the market participants which have liitle effect on the Book value. | ||||
Based on the above the following reasons for difference could be stated: | ||||
1 | Book value is the Net Assets owned by the company wheras Market value is the current market price of equity | |||
2 | Book Value per share =Net Assets owned by the company / No. of common shareholders | |||
Market Value per share =No. of common shareholders*Current Market Price | ||||
3 | Book is not volatile means it does not change frequently, whereas Market value is highly volatile and it can change every minute | |||
as the market price of the shares changes very frequently | ||||
4 | Book Value shows the position or financial strength of the company at any given date | |||
Market value is the maximum price that the market participants are willing to pay for the company | ||||