What is BOOK VALUE?
Book Value is like the price tag a company puts on itself based on all the things it owns, like buildings, machines, and money in the bank. It's like adding up the value of all your toys and saying, "This is how much my toy collection is worth!"
What is MARKET VALUE?
Market Value is what people are actually willing to pay for a company's stock right now. It's like when you sell your toys at a yard sale – the Market Value is the price someone actually buys them for, not just what you think they're worth.
Key Differences
- What they show: Book Value shows a company's worth based on its stuff, while Market Value shows what people think it's worth.
- How they're found: Book Value is found by adding up all the company's assets and subtracting its debts. Market Value is the price of one share of stock multiplied by the number of shares.
- How they change: Book Value doesn't change very often. Market Value can change every minute based on news and what people think.
- What they're used for: Book Value is used to see if a company is a bargain. Market Value is used to decide if you should buy or sell a stock.
When to Use Each One
Imagine you want to buy a used bike. The Book Value is like the cost of all the parts that make up the bike. If the seller is asking less than the cost of the parts, it might be a good deal! That's when you use Book Value. Market Value is like seeing what other people are selling similar bikes for online. If everyone is selling similar bikes for a higher price, the seller might be offering a good deal! That's when you use Market Value.
The Bottom Line
Book Value and Market Value are like two different ways of looking at a company's worth. Book Value helps you find potential bargains, while Market Value tells you what's happening right now. Using both together can help you make smarter decisions about investing your money. Remember, it's like having two eyes – you can see things better when you use both!