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 of 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 year would be as follows:

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 a 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 which 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 Share-holders would receive in full and final settlement.

Book Value vs Market Value Infographics

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

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 Between Book Value vs Market Value:

• 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

Book Value vs Market Value – Final Thoughts

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.

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