Difference Between Book Value and Market Value

In the field of business and share markets, two things come into the limelight. The first one is the book value, and the second is the market value.

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Business Quiz

Test your knowledge about topics related to business

1 / 10

A building jointly owned is called office________.

layout

condominium

accommodation

location

2 / 10

If a general manager asks the sales manager to recruit some salesman on his behalf, it is an instance of ___________.

Division of authority

Decentralisation of authority

Delegation of authority

Delegation of responsibility

3 / 10

__________ scale firms enjoy economies of scale.

Complex

Medium

Large

Small

4 / 10

In order to gain a competitive edge on the competition, some companies focus on:

Very low prices

Greeting every customer

Professional sales pitch

Quality

5 / 10

A person who risks both time and money to start and manage a business is called ___________.

Overachiever

Supervisor

Entrepreneur

Narcissist

6 / 10

In case of death or insolvency of a partner the firm is?

Dissolved

Carried on

New owner

None of the above

7 / 10

Individual Ownership is called as?

Joint Trade Business

Sole Proprietorship

Co-Operative Society

Partnership

8 / 10

Whose Liability is limited to the extent of his capital to the firm?

Owner

Partner

Employee

None of the above

9 / 10

Non-economic activities aim at __________.

social service

profit maximization

consumer satisfaction

wealth

10 / 10

Which of the following countries are part of the WTO?

Afghanistan

Cambodia

Burundi

All of these countries are part of the WTO

Pakistan

Your score is

Summary

Book Value vs Market Value

The difference between book value and market value is where the book value of something is the amount of money associated initially with making the product. It can be said as the summation of all products and services that were used to make the product. On the other hand, the market value of a product is the price that can be generated upon selling the product to the buyers—the buyers at a marketplace.

The book value, in simplest terms, is the original price of a product. However, any discounts or extra expenses for the product, interest associated with it aren’t concerned.

The market value of something is the portion of the cash that can be generated by selling a specific commodity. A characteristic of competition is present within it. Here a certain amount of revenue can also be assumed.

Comparison Table

Parameters of Comparison	Book Value	Market Value
Definition	It is the actual price of a commodity	It is the price at which the commodity is sold at a marketplace
Price	This is mostly lower than the market value	It is mostly higher than than the book value
Competition involved	There is no competition involved in it	It involves competition among various companies.
Inclusion	It doesn’t include depreciation or interest.	It includes all the costs along with the profit.
Formula	Total assets – liabilities	Market price × number of shares

What is Book Value?

The book value of something in simplest terms is the original price of a product. However, any discounts or extra fees for the product, interest associated with it aren’t concerned.

A sheet that is used to calculate the balance contains all the expenses that were used while making a particular product. This however is quite exclusive in a way that it doesn’t contain any interests that were incurred or any discounts.

The book value of a product is usually higher in amount than the value in which a product is sold at a market. Two conditions might arise; the first one is when the book value is lower or higher than the value at the market.

The formula to calculate this is adding the actual expenses minus the fluctuations in values or extra cost associated with the production.

It is pretty different from the mv as here there is no competition. This value can usually be associated with the more considerable property.

What is Market Value?

The market value of something can be said to be the portion of the cash that can be generated by selling a specific commodity. A characteristic of competition is present within it.

The market value is greater than the book value. A quantity that is called the p divided by b is used to compare the two terms. The phrase capitalization in the market also recognizes it.

In this, there is an amount of profit that is associated with it. Two situations might arise; the first one is when the market value is higher and lower than the book value.

There are undoubtedly different methods over which this value can be calculated. These include an income approach that has within it the dcf method along with the cem (capitalized earning).

The second type of approach is the market approach that includes within it the PCC and the precedent transactions. This is a fundamental method by which the value of an asset can be calculated.

Main Differences Between Book Value and Market Value

The book value is exclusive of any reduction or interest. At the same time, the market value includes everything along with the extra profit.
The formula of book value is total assets minus liabilities. Whereas formula for market value is the price of something multiplied by its number, be it commodity or shares.

References

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