EDUCBA

EDUCBA

MENUMENU
  • Free Tutorials
  • Free Courses
  • Certification Courses
  • 250+ Courses All in One Bundle
  • Login
Home Finance Finance Resources Valuation Basics Book Value vs Market Value
Secondary Sidebar
Finance Blog
  • valuation basics
    • Unsystematic Risk
    • EV to EBITDA Multiple
    • Equity Value
    • What is Beta?
    • Correlation Example
    • Inherent Risk
    • Feasibility Study Examples
    • Business Valuation Methods
    • Free Cash Flow to Firm
    • Working Capital Projections
    • Terminal Value Methodologies
    • Methods To Calculate WACC
    • Cost Of Equity Through Risks
    • Steps To Calculate Beta
    • Estimate Market Risk Premium
    • Enterprise Value Calculation
    • CAPM Calculations
    • Book Value vs Market Value
    • Discounted Cash Flow Analysis
    • Equity Financing
    • Simple Interest vs Compound Interest
    • Present Value vs Future Value
    • Assessed Value vs Market Value
    • Equity vs Royalty
    • Average Cost vs Marginal Cost
    • Terminal Value DCF
  • Accounting fundamentals (700+)
  • Asset Management Tutorial (200+)
  • Banking (44+)
  • Corporate Finance Basics (373+)
  • Credit Research Fundamentals (6+)
  • Economics (88+)
  • Finance Formula (386+)
  • Financial Modeling in Excel (17+)
  • Investment Banking Basics (140+)
  • Investment Banking Careers (29+)
  • Trading for dummies (69+)
  • Insurance Resources (14+)
  • Top Finance Books (7+)
Finance Blog Courses
  • Equity Research Online Training
  • Business Valuation Course
  • Private Equity Training Course

Book Value vs Market Value

By Madhuri ThakurMadhuri Thakur

Book Value vs Market Value

Difference Between Book Value vs Market Value

Book value is the recorded price of an asset which is shown in the Balance sheet excluding depreciation. Whereas Market value is the price (lower or higher than the book value) which can be obtained in case of selling off that assets-class or it is the price which is offered by a customer during the sale of the assets. For example ABC co. Ltd has purchased a Machinery of INR I,00,0000 during FY13. A straight line depreciation of INR 50,000 per year, thus the Book value for the next four years would be as follows:book value

Thus, the Book Value excluding Depreciation of the Machine has been INR 7, 50,000 during FY18 end is been calculated at INR 7,50,000 whereas the original costing of the machinery stood at INR 10,00,000 during FY13. The Depreciation which was charged @ INR 50,000 per year was due to the erosion due to wear and tear of the Machine or it is the cost of the functioning of the Machine. During the selling of the Machine, the scenario of the market (Buyer sentiment) may not be the same. Suppose, the Market price for the same machinery depends upon the condition of the Machinery and Demand & Supply. For example, the list of buyers may quote a price ranging from INR 7, 00,000 to INR 7,30,000 which is less than the book value by INR (20,000 to 50,000). In case the Demand of second-hand machinery is high and the market is willing to pay INR 8, 00,000 then the Difference between Book Value and Market value is positive. There is a scope of profitability in the second instance.

Financial markets decide a particular price of stock depending upon the fundamentals of the company and the earning potential of the Business in the coming years and the price is called ‘Market Value’ of the stock. Whereas, Book value, on the other hand, is the theoretical representation of an asset class that is recorded in the financial statement. In case of liquidation of the business, the excess of Assets left over after paying all the liabilities is the Book value or the Value which the shareholders would receive in the full and final settlement.

Book Value vs Market Value (Infographics)

Below is the top 5 difference between Book Value vs Market Value

Start Your Free Investment Banking Course

Download Corporate Valuation, Investment Banking, Accounting, CFA Calculator & others

All in One Financial Analyst Bundle(250+ Courses, 40+ Projects)
Financial ModelingInvestment BankingUS GAAPCFA-Level 1 & 2
Equity ResearchM & A ModelingPrivate Equity ModelingForex Trading
Price
View Courses
250+ Online Courses | 40+ Projects | 1000+ Hours | Verifiable Certificates | Lifetime Access
4.9 (86,389 ratings)

Market Value vs Book Value Infographics

Key Differences between Book Value vs Market Value

Both Book Value vs Market Value are popular choices in the market; let us discuss some of the major differences:

  • The Accounting concept of recording the Price of an asset class is known as Book Value and on the other hand, the discounting which the buyer or investors give for a particular asset class is known as Market value.
  • The amount which the Investors will get (All assets minus all liabilities) during liquidation is termed as the Book value. The Market price whereas decided by the class of investors or the traders who controls the financial markets as a whole and value an asset class on the basis of the fundamentals of that particular asset class.
  • The fluctuation in prices is very common in case of the Market Value whereas the price in case of Book value the price tends to move during each quarter as per the accounting treatment is done by the Accountants.
  • Financial Market plays an important role in determining the Market value whereas only the fundamentals of the particular Asset class plays an important role during the calculation of Book value.
  • Depreciation is an integral part of the Book value whereas depreciation hardly plays any part in market value, only the investor’s sentiment primarily drives the price movement.

Head To Head Comparison Between Book Value vs Market Value

Below is the topmost comparison between Book Value vs Market Value:

The basis of Comparison  Market Value Book value
Related to Related to the current price which the set of a buyer is willing to pay. The value which prevalent in the Financial market or it is the price of the Stock as valued by the group of investors or traders. Related to the Purchase price less of depreciation which is recorded at the Balance sheet. The price which the Share-holders will get during the liquidation of the Business
Meaning The price which is decided after the demand and supply constraints and the price movement is cyclical in nature, it purely depends upon the psychology of the buyer and seller and on the sentiment of the Financial markets. Sometimes, the buyer is ready to pay higher than the book value when the demands are more or the class of investors thinks the Fundamentals are robust and the Business would deliver higher profitability in coming years. For example, in the Indian stock market, the market price of a Private Banking stock with good growth, good management (HDFC Bank) usually trades more than 4.8 to 5 times the Book-value. The price which is shown in the Financial statement i.e. the Cost price less any Depreciation or Amortization is known as book value. Depreciation is charged for the Fixed assets whereas Amortization is charged for Intangible assets such as goodwill. In other words, the price which is theoretically shown in the Financial Statements.
Depreciation Depreciation is not accountable in most cases, but the valuation is decided by the buyer and seller and is dependent on the demand and supply. Depreciation is taken into account when the value of the assets is put into the records. This provides an estimation of the price of the assets which the company would be showing to the Investor’s group, the suppliers, and the other related parties with which the business deals.
Calculations Market price = Average Price Earnings multiple of the Sector * Earning Per Share (approximately) Book value = Cost price of the Assets less Depreciation and Amortization.

Or (Assets – Liability )/ Number of shares outstanding

Financial Market  The Market value is entirely dependent on the Financial market. Does not have any relation to the Financial markets.

Conclusion

The Book value vs market value, both are prime drivers in determining the value of an asset class, however, a higher market value over the book value is considered to be good for a particular asset class and vice versa.

Recommended Article

This has been a guide to the top 9 differences between Book Value vs Market Value. Here we take the difference between Book Value vs Market Value with examples, infographics, and a comparison table. You may also have a look at the following articles to learn more –

  1. Revenue vs Sales
  2. Revenue vs Income
  3. Interest Rate vs Annual Percentage Rate
  4. Liabilities vs Assets
Popular Course in this category
All in One Financial Analyst Bundle- 250+ Courses, 40+ Projects
  250+ Online Courses |  1000+ Hours |  Verifiable Certificates |  Lifetime Access
4.9
Price

View Course

Related Courses

Equity Research Training (17 Courses)4.9
Business Valuation Training (16 Courses)4.8
Private Equity Training (19+ Courses with Case Studies)4.7
2 Shares
Share
Tweet
Share
Primary Sidebar
Footer
About Us
  • Blog
  • Who is EDUCBA?
  • Sign Up
  • Live Classes
  • Corporate Training
  • Certificate from Top Institutions
  • Contact Us
  • Verifiable Certificate
  • Reviews
  • Terms and Conditions
  • Privacy Policy
  •  
Apps
  • iPhone & iPad
  • Android
Resources
  • Free Courses
  • Investment Banking Jobs Offer
  • Finance Formula
  • All Tutorials
Certification Courses
  • All Courses
  • Financial Analyst All in One Bundle
  • Investment Banking Training
  • Financial Modeling Course
  • Equity Research Course
  • Private Equity Training Course
  • Business Valuation Course
  • Mergers and Acquisitions Course

ISO 10004:2018 & ISO 9001:2015 Certified

© 2022 - EDUCBA. ALL RIGHTS RESERVED. THE CERTIFICATION NAMES ARE THE TRADEMARKS OF THEIR RESPECTIVE OWNERS.

EDUCBA
Free Financial Modeling Course

3 Statement Model Creation, Revenue Forecasting, Supporting Schedule Building, & others

*Please provide your correct email id. Login details for this Free course will be emailed to you

By signing up, you agree to our Terms of Use and Privacy Policy.

EDUCBA Login

Forgot Password?

By signing up, you agree to our Terms of Use and Privacy Policy.

EDUCBA
Free Investment Banking Course

Corporate Valuation, Investment Banking, Accounting, CFA Calculator & others

*Please provide your correct email id. Login details for this Free course will be emailed to you

By signing up, you agree to our Terms of Use and Privacy Policy.

EDUCBA

*Please provide your correct email id. Login details for this Free course will be emailed to you

By signing up, you agree to our Terms of Use and Privacy Policy.

Let’s Get Started

By signing up, you agree to our Terms of Use and Privacy Policy.

This website or its third-party tools use cookies, which are necessary to its functioning and required to achieve the purposes illustrated in the cookie policy. By closing this banner, scrolling this page, clicking a link or continuing to browse otherwise, you agree to our Privacy Policy

Loading . . .
Quiz
Question:

Answer:

Quiz Result
Total QuestionsCorrect AnswersWrong AnswersPercentage

Explore 1000+ varieties of Mock tests View more