MARKET VALUES

What Is The Significance Of “Market Values” And How Can We Evaluate Performance Of The Companies By Using Investor Ratios And Profitability Ratios.

What Is the Significance of “Market Values” And How Can We Evaluate Performance of the Companies by Using Investor Ratios and Profitability Ratios

Introduction

In the start of the report we simply define the book value of the company and market value of the companies and significance of market value against book values. Further we critically assess a relevant range of investor and profitability ratios used for measuring performance of the companies and finally we will discuss the usefulness of investor ratios and recommendation. We have chosen GlaxoSmithKline (GSK) and Tesco Plc for the analysis.

Market value

Market value is if the shares are placed on the open market, then set based on the share price at the securities market. In practice, the nominal and market value are not equal or even roughly similar - the developing company a market value of stocks will be higher, rather than the organization for which there are problems in the financial support. The market value of the shares determined on the basis of supply and demand.

Book value of shares

Book value is reflected on a balance sheet and is calculated from the amount of the share capital of the company equal to the aggregate of the property complex on the amount of liabilities and capital made by the owners of preferred shares. Separately estimate the company's shares to determine book value is not carried out - this is because in many ways it depends on your organization's policies. Often the book value is used as a security feature the company's shares.

Almost never book and market value of the company do not match. In most cases, the company's capitalization significantly higher book value. This is explained by the fact that according to modern concepts, the market value of any corporation is not dependent on capital structure and is determined solely by the dynamics of its future earnings. That is the future value of the company - and a fair price its shares - and tries to evaluate the fundamental analysis .

Table A, we see that the book value of shares of the corporation at the end of 2009 2008 2007 for Gsk is made up of 1.77, 1.4 and 1.6 and for Tesco it is 1.64, 1.50 and 1.32, but its market value(GSK) at the same time periods there was 42.25, 37.24 and 50.3 (Tesco) it is 14.23, 23.60 and 26.25 dollars Such was the price that investors were willing to pay for one ordinary share GSK and Tesco respectively in 2009, 2008 and 2007, but this price in the official balance sheet is not visible

Table A

 

2009

2008

2007

GSK

 

 

 

Book Value per Share

1.77

1.4

1.6

Market Value per share

42.25

37.27

50.3

PB ratio

23.87

26.62

31.44

Tesco

 

 

 

Book value per share

1.64

1.50

1.32

Market value per share

14.23

23.60

26.25

PB ratio

8.68

15.73

19.89

Significance

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 ...