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How may information bearing upon performance evaluation help to explain why a firm's market value differs from its book value ?
Member rating: No Rating | Words: | Submitted: Mon Jun 19 2006
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How may information bearing upon performance evaluation help to explain why a firm's market value differs from its book value ? The difference between the market value and book value of a firm is an issue with very important repercussions. Ideally, what the market determines is the value of a firms equity should coincide with what accounting determines. However, the fact that this in reality is not the case raises the issue of why these disparities occur. This essay will examine why the market value of a firm can differ from the book value. To begin with, it is worth noting the definitions of the two measures of a firms value. Market value (MV) is defined as: MV = share price X number of shares issued Book value (BV) or Common Stockholders Equity (CSE) is the cash value of the business, which, after all debts are paid, belongs to the owners. It is calculated,...
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