| Definition |
The net asset value of a company as recorded on the balance sheet (assets minus liabilities). |
The current price at which an asset or company can be bought or sold in the market. |
| Calculation |
Book Value = Total Assets – Total Liabilities (based on historical cost). |
Market Value = Current Market Price × Number of Outstanding Shares. |
| Basis |
Based on accounting records and historical costs. |
Based on market perceptions, demand and supply dynamics. |
| Reflects |
Intrinsic or accounting value of company’s net assets. |
Investor sentiment and future growth expectations. |
| Volatility |
Generally stable and changes slowly over time. |
Highly volatile and can change daily with market conditions. |
| Usefulness |
Used to assess company’s net worth and for valuation purposes. |
Used by investors to determine company’s market capitalization and investment value. |
| Influenced by |
Accounting policies, depreciation, asset revaluation. |
Market trends, company performance, news, economic factors. |
| Investment Decisions |
Helps value companies in asset-heavy industries. |
Reflects what investors are willing to pay for ownership. |
| Limitations |
May undervalue intangible assets and brand value. |
Can be influenced by market speculation and may not reflect true company value. |
| Example |
Assets: $1,000,000; Liabilities: $400,000 → Book Value = $600,000. |
Shares: 100,000; Market Price: $10 → Market Value = $1,000,000. |
Book Value vs Market Value