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Difference between book value and market value.
The major differences between book value and market value are as follows −
Book value
Real value of an asset.
Reflects firm’s equity.
Not related to financial market.
Depreciation is taken into account.
Book value = (assets – liabilities)/ number of outstanding shares.
Book value = cost of asset – (depreciation + amortization).
Frequency of fluctuations happens at periodic intervals.
Accounted in balance sheet based on historical cost, amortized value or fair value.
Market value
Maximum value of an asset/security which can be bought/sold in the market.
Reflects current market price.
Market value is dependent on financial market.
In most cases, depreciation is not accountable.
Market value = market price per share * number of outstanding shares.
Frequency of fluctuations is very frequent.
Fair value/market value of an asset.
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