Book Value versus Market Cap

Course: Investment Planning
Lesson 5: Fundamental Equity Analysis

Student Question:


How is a company’s book value different from the market cap?

Instructor Response:

Book value is an accounting concept generally based upon the acquisition costs of and the legally binding amounts of liabilities.  It is the amount of cash that would be left over if all of the assets were sold at the values listed in the balance sheet and all of the liabilities were paid off at the values listed on the balance sheet.  

Market cap is a fair market value concept calculated as the number of a publicly traded firm’s shares outstanding multiplied by the market price per share.  

Let us know if you have any other questions here.