Ideally, what the market determines is the value of a firms equity should coincide with what accounting determines. However, the fact that this in reality is not the case raises the issue of why these disparities occur. This essay will examine why the market value of a firm can differ from the book value. To begin with, it is worth noting the definitions of the two measures of a firms value. Market value (MV) is defined as: MV = share price X number of shares issued Book value (BV) or Common Stockholders Equity (CSE) is the cash value of the business, which, after all debts are paid, belongs to the owners. It is calculated, from the balance sheet as: BV = (Assets – Liabilities + value of preferred shares) / Total number of common shares

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