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Difference Between Book value and Market value

dollarBook value vs Market value
Book value and market value are sometimes closely related and sometimes they aren’t. The difference between the two can actually be an indicator used in the assessment of a stock. Book value is self-explanatory; it is simply the value of the stock, company, etc. based on the numbers in the books. Technically it can be calculated by taking the value of real assets and subtracting any debt. This is the most common usage of the term and it is what stock holders would receive if the company were liquidated. The market value is simply the price that the stock, company, etc. is being bought and sold for on the market at a given time.

Book value is a definite number and can be calculated at any moment given the necessary data. It can be useful for individuals considering whether to purchase a stock. The book value is the amount that would potentially be divided among the stock holders should the company be liquidated. This might be considered a minimum that one might receive, but there are a number of details to consider. More definitely it can be used an indicator of whether the stock is over or under valued in the market. Possibly helping an individual to determine when a good time to buy and sell might be.

Market value is a definite number, but has no definite basis or calculation method other than simply observing the trades that are executed. Since sentiment and sometimes indirectly related news can influence a market value, this number may not be close to the book value at any given time. This difference is the indicator mentioned above. Market value may also lead the book value in some instances. This may be observed in instances of planned business transactions being announced before the transactions are completed and recorded in the books.

Market value and book value are interrelated and useful in gathering a complete picture of any company. Knowledge of both and their influence on each other in any company and in any situation can be helpful when planning investments.


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