Market value

Market Values, Book Value and Investor ratios: Performance Evaluation of the Companies

Market Values, Book Value and Investor ratios: Performance Evaluation of the Companies

Introduction

Is market value of the companies or book values of the companies is suitable parameter for gauging the performance of the companies and what is difference in two approaches? In beginning of the report we briefly define the significance of market value of UK based enterprises (companies) and identify the difference between Book value and Market value in this respect. Further we analyse the financial statements of Tesco Plc and AstraZeneca

To evaluate the performance of the said companies based on investor and profitability ratios. Finaaly we conclude the analysis and provide some recommendation about gauging the performance of the entities.

Significance of “market values” of UK Listed Companies

The book value and market value are closely related, but at times they do not. To assess a stock index, the difference of these two can be used. Book value is self-evident; it is just shares of the company at book value on the number basis. It can be computed by taking the actual asset value, less any debt. This is the most general usage of the term, which is what, in case of the liquidation of the company, the shareholders would receive. The market value is basically that price on which the stock, company, etc. are traded in the market at a given time.

Book value is a specific figure that in case of availability of the data can be computed at any time. Individuals can also use this while deciding to purchase any stock. The book value is that amount of money that would be in case of liquidation, distributed among the shareholders. This may be supposed as a minimum amount that one may receive, but there exists many details that need to be considered. More precisely it can be used as an indicator of whether the stock is over or under valued in the market. Possibly guiding an individual to decide when a good time to buy and sell stocks.

Market value is a specific number, that cannot be calculated using any computation methods but by simply observing the trades that are performed. Since sentiment and sometimes indirectly related news can influence a market value, this figure may be far away from the book value at a certain time. This is the indicator that was mentioned previously. Market value may also lead the book value in some situations. This may be observed in scenarios of planned business transactions being announced before the transactions are completed and recorded in the books.

 

2009

2008

2007

book value per share

1.64

1.5

1.32

market value per share

14.23

23.6

26.25

PB ratio

8.68

15.73

19.89

The above prices are taken from the financial statements of a UK listed company TESCO.

The PB ratio provides investors with a price tag by comparing the book (original) value of an organization's assets to the market (trading) value of an organization's assets. The actual ratio is calculated by dividing market capitalization (or stock price) by the book value of equity ...