What Is the Difference Between Book Value and Market Value?

Book value vs market value is a common point of confusion when you start analysing companies. A firm’s balance sheet may show one figure; its share price may suggest a very different one, and it is not obvious which number tells you more about the business.

PW Skills’ Investment Banking and Valuation course helps you work through this with practical learning. It offers recorded classes, live Saturday doubt sessions and real industry case studies, so you can practise valuing companies instead of only reading definitions.

What Is the Book Value of a Company?

The book value of a company is the value of its net assets as recorded in its financial statements. In plain text:

Book value = Total assets - Total liabilities

This is the amount that would remain for shareholders, in accounting terms, if the company sold its assets at their recorded values and paid off all its debts.

Book value follows accounting rules, which generally record assets at historical cost, meaning what the company paid. For long-term assets such as equipment, the recorded figure is the cost minus accumulated depreciation. The result is reliable because it rests on past transactions that can be verified. However, it depends on assumptions such as the asset’s expected life, the depreciation method and its scrap value.

What Is the Market Value of a Company?

The market value of a company is what the market currently believes it is worth. For a listed company, it is usually calculated as:

Market value = Share price x Number of shares outstanding

This figure changes as the share price changes. Stock prices reflect how well investors expect a company to generate cash, so market value depends on expectations about future earnings, competition, management and economic conditions. Not all of these appear on a balance sheet.

Book Value vs Market Value: Key Differences

The following table compares the two measures.

What Are Book Value per Share and Market Value per Share?

Both measures can be expressed per share, which makes comparison easier.

Book value per share = Shareholders’ equity / Number of shares outstanding

Market value per share is simply the current market price of one share.

Here is an illustrative example. Assume a company has assets of Rs. 500 crore, liabilities of Rs. 300 crore and 10 crore shares outstanding. Its book value is Rs. 200 crore, so its book value per share is Rs. 20. If the shares trade at Rs. 50, its market value per share is Rs. 50 and its market value is Rs. 500 crore. Investors are paying more than the accounts suggest, which could mean they expect strong future earnings.

Analysts often compare the two using the price-to-book ratio:

Price-to-book ratio = Market value per share / Book value per share

In this example, the ratio is 2.5.

What Is Net Asset Value?

Net asset value (NAV) is also calculated as assets minus liabilities. It is commonly used for investment funds, where NAV per unit shows the value of the fund’s holdings after deducting what it owes. For a company, net asset value is closely related to book value, as both start from the balance sheet rather than the stock market price.

Why Can Book Value and Market Value Differ?

Several reasons explain the gap.

1. Historical cost accounting: Assets are recorded at past prices, while market value reflects what investors think the business is worth now. A two-year-old computer, for example, may have a book value that differs from its market value, replacement cost and earning power.

2. Unreported assets: Skilled employees, management quality, brand reputation and strategic position can drive performance, yet they are hard to measure and often do not appear as assets.

3. Expectations: Market prices respond to forecasts. A company can report a profit and still see its share price fall if the result is below what analysts expected.

4. Limits on revaluation: Accounting rules generally avoid appraised market values because they are harder to verify and easier to manipulate than recorded costs.

5. Undervalued or overvalued companies: When true worth is higher than the market price, a company may be undervalued. M&A specialists look for such gaps when deciding whether to combine businesses.

When Do Analysts Use Each Measure?

Different users look at different measures, depending on their goal.

1. Equity investors: They compare share prices with book value per share to judge whether a stock looks expensive or cheap, alongside earnings and cash flow.

2. Lenders: They look at the balance sheet to see whether equity provides a margin of safety before they lend.

3. M&A specialists: They often adjust financial statements to estimate a company’s economic worth when valuing a target.

4. Managers: They monitor how effectively the company uses its assets to create value for shareholders.

Learn Business Valuation with PW Skills

Knowing the definitions is a starting point. Valuing a real company takes practice with live data. PW Skills’ Investment Banking Course teaches you business valuation, financial modelling, M&A and LBO modelling through hands-on projects. It prepares you for roles in investment banking, corporate finance, equity research, valuation and private equity. You also receive the Investment Banking and Valuation Course Certificate from PW Skills after successfully completing the course*.

What you can learn:

• Financial Modelling: Build industry-standard financial models used in investment banking and corporate finance.

• Business Valuation: Practise valuation techniques such as DCF, comparable company analysis and transaction multiples.

• DCF Modelling: Use the discounted cash flow method to value a business.

• Financial Statement Analysis: Learn to interpret financial statements as part of analysing and valuing a company.

• Excel for Finance: Develop the Excel skills needed for finance work.

• Pitch Deck Preparation: Learn to prepare pitch decks and presentations.

• Capital Raising: Understand how organisations raise funds, a key part of how investment banks support businesses.

• Financial Forecasting: Build skills in forecasting a company’s financial performance.

Learn through real case studies:

• Tata Technologies IPO: Equity capital markets and the IPO process

• Adani Green Bond Issuance: Debt capital markets

• Wipro Acquisition of Capco: M&A strategy and valuation

• Private Equity LBO: Leveraged buyout modelling

• Jet Airways under IBC: Corporate restructuring and turnaround

Who can join:

• Students: B.Com, BBA, BA (Economics) and BMS students.

• Aspirants: MBA, CA, CMA and CS aspirants.

• Professionals: Finance professionals and working professionals who want to upskill.

• Eligibility: You need to be pursuing or to have completed graduation. A finance background is preferred but not mandatory.

Career roles you can explore:

• Investment Banking Analyst

• Financial Analyst

• Valuation Analyst

• M&A Analyst

• Equity Research Analyst

• Corporate Finance Analyst

• Private Equity Analyst

Book value tells you what a company’s accounts record, and market value tells you what investors expect from it. Neither is complete on its own, so comparing them, along with book value per share, market value per share and net asset value, helps you ask better questions about a business. With PW Skills’ Investment Banking Course, you can build the valuation and financial modelling skills to apply these measures to real companies.