Question

What is the difference between book value per share of common stock and market value per share? Why does this disparity occur?

Answer 1

Book value=Total Assets-Total Liabilities
It is calculated using the values in balance sheet
So, book value per share=(Total Assets-Total Liabilities)/(Number of shares outstanding)

Market value per share=(Market capitalization)/(Number of shares outstanding)
Market capitalization=(Share price)*(Number of shares outstanding)

These values will be different because book value per share shows the past performance and financial position of a company recorded in balance sheet.
Market value shows the past performance and future expectation of a company.
If a future expectation is bright then before the number gets recorded in balance sheet it displays in market value (when the share price increases and thus increasing the market value per share)

Please let me know if you find any difficulty in understanding the solution.