Book Value, Liquidation Value and Market Value of Shares Essay

concur esteem The password look on of cut-and-dry role is the salary worth of a corporation less(prenominal) the par take account of preference constituents outstanding divided by the number of median(a) donations outstanding. Suppose the net worth of a company contains the following(a) information viz Preference destinys (Rs. 100 per piece of ground) 1000000. 00 cut-and-dry share (Rs. 5 per share) 1500000. 00 Share agiotage 1000000. 00 Retained earnings 500000. 00 4000000. 00 Book order of ordinary share 300000/30000 = 10 per shareTheoretically, the handwriting value of a share should correspond to the liquidating value of the company however, in reality this situation never occurs. nevertheless if the assets of a company can be liquidated for the book values shown on the fiscal statements, then book value per share is equal to the liquidating value per share. plain, then if liquidating be are high, the liquidating value per share leave be less than book value per share.For some companies, the liquidating value per share is less than book value per share because numerous of the assets can be liquidated notwithstanding at reduced tolls. However, some companies carry certain(prenominal) assets notably, land mineral rights at petty(a) values on their books relative to the food commercialise 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 corking per share in order to throw a more conservative judge of the possible liquidating value of a company. securities industry value The market value per share is the current terms at which the comport 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 s hares is difficult to obtain. Even when obtainable, the information may reflect only the sale of a few shares and not specify 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 prospective 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.