Series 7: 9.4.1.5.5 Market Value Vs. Book Value Of An Equity Security

Taken from our Series 7 Top-off Online Guide

9.4.1.5.5 Market Value vs. Book Value of an Equity Security

For publicly traded stocks, the market value of the stock is the share price at which it is currently trading. The market value of the company is its market capitalization. As we have seen:

market capitalization = (market share price) × (number of shares outstanding)

market value of the stock = market capitalization ÷ number of shares outstanding

The book value of a stock is the shareholders’ equity for common stock divided by the number of shares of common stock. This is called the stated book value of the stock. Stated book value is the theoretical amount of money left over for common stockholders if the company is forced to liquidate.

book value of a company = shareholders’ equity

book value of a stock = shareholders’ equity ÷ number of shares outstanding

Book value represents the current value of the company according to its own books and ignores future growth potential. Market value represents the market’s opinion as to the company’s near-term prospects. Most c

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