Question

Describe the difference between market value and book value?

Answer 1

Market value of equity = Market price per share × Shares outstanding

Market value reflects the collective and differing expectations of investors concerning the amount, timing, and uncertainty of a company’s future cash flows.A company’s market value is affected by management’s decision.he ultimate goal of management is to maximize the market value of its equity.

Book value of equity per share = Total shareholders’ equity/Shares outstanding

The book value of a company’s equity is the difference between its total assets and total liabilities—increases when the company retains its net income.The book value of a company’s equity reflects the historical operating and financing decisions of its management.If investors believe that the company has a large number of these future cash flow-generating investment opportunities, the market value of the company’s equity will exceed its book value.