Book Value vs Market Value of Shares

What is the difference between book value and market value of shares on the stock market? This video explains the book value and market value concepts, and illustrates book value versus market value using the example of Apple Inc.

The distinction between book value and #marketvalue of a stock is basically one of looking back versus looking forward.

⏱️TIMESTAMPS⏱️
0:00 Introduction
0:23 Book value explained
0:43 Market value explained
1:44 How to calculate book value
2:22 What market value means
2:58 Price-to-book ratio
3:22 What does price-to-book ratio indicate
4:05 Warning sign: low price-to-book ratio (below 1)

Book value, or accounting value, is based on a company’s historical financial results, looking back. You use a company’s latest balance sheet to come up with the book value of the equity, you look up the number of shares outstanding (which is usually mentioned in the earnings per share calculation in the income statement), and when you divide the two numbers you get the book value per share.

Market value, or economic value, depends on the expectations of investors for the future of the company, looking forward. Do investors see sunshine and blue skies coming up, or clouds and thunderstorms? In order to form an opinion about a company’s future, it is wise to dive into its strategy, technology, and leadership. Do these give you confidence that the company is on the right track? Next step is to try to translate that assessment to numbers: based on the strategy, technology, and leadership, what do you see as the possible revenue, income, and cash flow for the company for the next 10 to 20 years? Last step is to review probability and variability: do you think the projected revenue, income and cash flow are pretty much a “done deal”, so the risk and volatility are low, or is there a wide range of both positive and negative scenarios, so the risk and volatility are high?

Philip de Vroe (The Finance Storyteller) aims to make strategy, accounting, finance and #investing enjoyable and easier to understand. Learn the business vocabulary to join the conversation with your CEO at your company. Understand how financial statements work in order to make better stock market investment decisions. Philip delivers training in various formats: YouTube videos, classroom sessions, webinars, and business simulations. Connect with me through Linked In!

[franciscovinueza]

Great video. I love how easy you explain things.

[madiyarrakhmanov]

Good morning dear author of the video. I am a novice in the field of investment. I am a foreigner. Thank you very much for your very well explained video with visual examples. Difficult notions are explained in articulate English language that even a foreigner may understand. I am looking forward to watch your videos. Have a nice day.

[Chaoticfoundations]

Thank you! I have a test in 40 minutes and you explained it so simply!

[Erez.Levi.Stocks]

As usual another excellent explanation ..
At the end of the video you said that you do not use this figure as one of your main ones.
May I ask which ones?
Thanks in advance

[lukas]

Damn. Thanks for taking your time by making a PP, using clear examples and explaining the topic very well!!! +1 sub and like

[ridonvokshi]

Hello there! Thank you so much for your insightful and interesting basic finance videos. Could you please make a video explaining how you basically compare different companies overall?

I feel a bit confused as there are financial ratios, market cap, and other stuff that complicate things. What should we look at exactly?

[georgerobertsiii]

A high price to book ratio can also indicate that the company is in a relatively low capital-intensive sector. Apple outsources its manufacturing and charges a high premium for its innovative products. Extraordinary cash-cow businesses like Apple Computer often have a high price to book ratio for this reason.

[jemnotjam]

How important is the book value and all those ratios if you're investing just for capital growth and not so much for income (dividend payouts etc)? Supposedly your to-be-realised capital gain is just selling the stock after its market value has risen- which is pretty much influenced by market sentiment?

[bigjro]

Thanks for the video.
Just to confirm... can these terms be replaced with “Carrying Amount” and “Fair Value”?

[wowsritaiwan]

So if net asset of A company per share is 25 and market value is 150 and B company’s net asset per share is 25 and market value is 20 so which share should I buy?

[dolevmazker]

well explained man, i enjoyed this video

[dineshkumar-vcqk]

Very well.. how to calculate market value and face value? You have any video this

[micsasmr]

Can I ask if the Shareholder represents the market value?

[OakRaiders]

What does it mean when a company sells their own shares lower than the market value? Will the price of a share increase or decrease?

[janelleannelaugos]

is it necessary to record the cost or the fair market value?

[rehan-hqec]

What about nominal/par value? Whats that?

[AzlanShahAShafiuddin]

Is Book Value the same as Enterprise Value?

[abdolzamil]

whats the differance between Price to book ratio and Book value per share ?

[nelysvabska]

Where did you get outstanding shares from please?

[jacobsober]

You sound like Nikki Lauda in the movie rush. Great video btw.