Discussion Board 2 – Market Value vs. Book Value

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Running head: DISCUSSION BOARD 2 – MARKET VALUE VS. BOOK VALUE

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DISCUSSION BOARD 2 – MARKET VALUE VS. BOOK VALUE

Discussion Board 2 – Market Value vs. Book Value

Discussion Board 2 – Market Value vs. Book Value

As has been discussed throughout the readings in the text, a firm can have multiple different values, each of which is representative of different factors and important for many reasons. Two of these values are book value and market value. Book value is what can be found on a company’s financial statements, and is the difference between a company’s total assets and total liabilities, and essentially equates to what would be left if a company sold its assets and paid off its liabilities. Market value, on the other hand, is the stock market value of a company, and is calculated by multiplying the number of shares outstanding by the current trading price per share. If book value is greater than market value, it is a sign that the public has low confidence in the future profits of the company. If market value is greater than book value, however, a company likely has a confident public following, a profitable existence, and a potentially inflated earning’s power of the assets of the company (Gad, 2013). One example of a company with a market value which is much higher than its book value is Apple Inc, which is currently showing a price to book value of 9.3, meaning the market value of the company is 9.3 times higher than the book value (Apple Inc Price to Book Value, 2018). Based on the profitability and success of this company, and its continued innovation, this value makes sense, and is not necessarily a bad sign for the company.

Company executives can create the most value for all stakeholders by striving to maximize the long-term market value of the firm. In this way, a company and its executives need to be focused not just on the market value of a company and how it performs in the stock market, but rather to focus on “how customers, suppliers, employees, financiers, communities, and managers interact to create value, [as] there is no single formula for balancing or prioritizing stakeholders” (Freeman & Elms, 2018).

References

Apple Inc price to book value. (n.d.). Retrieved September 10, 2018, from

https://ycharts.com/companies/AAPL/price_to_book_value

Freeman, R. E., & Elms, H. (2018, January 4). Business is to create value for stakeholders.

Retrieved from https://sloanreview.mit.edu/article/the-social-responsibility-of-business-is-to-create-value-for-stakeholders/

Gad, S. (2013, November 7). The market value versus book value. Retrieved from

https://finance.yahoo.com/news/market-value-versus-book-value-173000512.html