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.