Book Value, Liquidation Value and Market Value of Shares Essay

record book quantify The book look on of ordinary share is the net charge of a corporation less the par entertain of preference shares dandy divided by the number of ordinary shares outstanding. Suppose the net worth of a connection contains the following information viz Preference shares (Rs. 100 per share) 1000000. 00 indifferent share (Rs. 5 per share) 1500000. 00 Share premium 1000000. 00 Retained earnings 500000. 00 4000000. 00 book of account range of ordinary share 300000/30000 = 10 per shareTheoretically, the book tax of a share should correspond to the liquidating value of the company however, in verity this situation never occurs. Only if the assets of a company can be liquidated for the book values shown on the financial statements, then book value per share is equal to the liquidating value per share. Even, then if liquidating costs are high, the liquidating value per share will be less than book value per share.For legion(predicate) a(prenominal) companies , the liquidating value per share is less than book value per share because many of the assets can be liquidated only at reduced footings. However, some companies brook certain assets notably, land mineral rights at modest values on their books relative to the commercialize value of the asset. For these companies, the liquidating value per share may be significantly higher than the book value. Sometimes, investors calculate the net working detonator per share in order to obtain a more bourgeois estimate of the possible liquidating value of a company. marketplace value The foodstuff value per share is the current price at which the stock is traded. For listed companies and the shares of a company which are actively traded in the stock markets, market price quotations are readily available. However, the market for the shares of many companies is thin and inactive, so that market price information about its shares is difficult to obtain. Even when obtainable, the information ma y reflect only the sale of a few shares and not prepare the market value of the firms as a whole.For companies of this sort, care must be taken in interpreting market price information. The market value of ordinary share usually differs considerably from its book value and its liquidating value. Market value is a function of the current and expected future dividends of the company and the perceived risk of the shares on the part of investors. Because these factors bear only a partial relationship to the book value and the liquidating value of the company, the market value per share is not tied closely to these values.