There are numerous ways an organization can be valued, yet one vital distinction to compose is between its worth in book and the worth dictated by the market. Book value, is the worth written in financial books of any company. However, market value is explained as the real worth of company identifying with different firms in market. Individuals take it somewhat hard to distinguish, which one will demonstrate the excellence for an investor to think before putting his investment in any company. Market capitalization is the value placed by investors on a company at a given point of time. These values might fluctuate or they possibly alike yet most importantly you should realize that the contrast between book value, market value and market capitalization will explain you about profit or loss. Moreover, if these values are same then no profit or loss is there.

Book Value

Book value is the value that appears in balance sheet of an organization. According to usual accounting standards, an asset ought to be documented at historical value of asset subtracting accumulated depreciation. When a company is discussed, the book value signifies to its total value. It can be ascertained by subtracting the intangible assets and total liabilities from net assets. It is the sum which will continue with the organization, on the off chance that it gets liquidated quickly. Such a sum is required to be conveyed among the various shareholders.

Market Value

Market value is defined as the highest value that a purchaser is willing to give for an asset in market. It is the worth at which the buying and selling of an asset is done in market. Presently when discussion is about an organization, it is the worth of public company. Market Value is the outcome acquired through multiplying the aggregate number of shares with the present market cost per share. The current market cost of a share is calculated on basis on buying and selling of company is done. There are number of components can impact the market value of an organization e.g. performance, profitability, liquidity etc. Market value is complicated than market capitalization. It is assessed using numerous metrics and multiples like price-to-earnings, price-to-sales and return on equity.

Market Capitalization

Market capitalization is a measure of corporate assets. It is basically the number of a company’s shares outstanding multiplied by the current price of a single share.

Book Value vs. Market Value vs. Market Capitalization

There are few contrasts that exist between book value, market value and market capitalization. They are explained as below:

Definition

Book value implies the value written in financial books of any firm for its assets.

Market value implies the highest cost at which any security or an asset can be traded in market.

Market capitalization is a simple metric based on stock price. It is often used to help define the value of a company when analyzing potential trade opportunities. It is still a subjective measure of value because it is related to the ever-changing stock prices.

Meaning

Book value is the real worth of any company or an asset.

Market value is the maximum evaluated value of any company or an asset.

Market capitalization is the value of a company’s equity. It is not its market value overall.

Explain

Book value explains firm’s equity as book value is same as the firm’s equity.

Market value explains recent price in the market.

Fluctuations

Fluctuations in book value may be done periodically, usually on annual basis as infrequent fluctuations are there in book value.

Fluctuations in market value may be done any time, as there is no specific time period for its changes. From this we can say that frequent fluctuations are there in market value.

Estimation

When the estimation of book value is concerned, we will only look into the tangible asset of company.

When estimation of market value is concerned, we will consider the tangible assets with intangible assets of a company.

Market capitalization is calculated by multiplying the number of shares outstanding by the current price of a single share. For instance, if a company has 50 million shares and a stock price of $100 dollars per share; then the market capitalization will be $5 billion dollars.

Availability

Book value is promptly available at all times.

Market value is not promptly available at all times.

Market capitalization is to be calculated as it fluctuates with the stock market. It isn’t available promptly at all times.

Profit or loss

If the value written on book i.e. book value, is more than market value, this means a company is enjoying profit.

If the market value is more than book value, this means a company is facing a loss.

Conclusion

From above article we come to know that book value is the value written in financial book of a company while market value is the highest value of assets at which it can trade in market. Book value actually explains the firm’s equity but market value explains current market price of assets. There are frequent fluctuations in market value but not in case of book value. For estimation of book value, only tangible assets are taken into account but both assets i.e. tangible and intangible are taken into consideration for estimation of market value. Book value is promptly available at all times, but in case of market value it is not promptly available at all times. When book value is as compared to market value then profit is there and vice versa. Market capitalization is a synonym for the market value of equity. It is one single inconvertible figure. It is derived from calculations based on corporate assets. Do you agree with us?