Distinction between the book value of a stock

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Reference no: EM132897478

There is a distinction between the book value of a stock versus the market value. Book value is simply a matter of analyzing the financial statements of an organization in coming to valuation.

However, market value is a matter of what someone is willing to pay for a share of stock. The stock exchanges are typically forward-looking in nature and attempt to anticipate what the future value of a share of stock will be, rather than what it is currently in terms of book value. It is not typical to find a market and book value on the same page with publicly traded organizations. This is particularly true with a company that does an Initial Public Offering (IPO), where anticipation of future grow gets ahead of itself and we end up with extreme multiples of the book price of a share!

One item to note with dividends and stock valuation is - there are a lot of organizations that pay no dividends on shares owned. Authors of textbooks love to gravitate to dividends and in a perfect world, all organizations would pay them. However, in the real world, it is on a by company basis depending on their operating model.

From a personal perspective - can you give an example of book value not equaling market value?

Reference no: EM132897478

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