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Market Value vs. Book Value

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The market value of stock is measured differently than the book value of stock, which is the value of stock that is recorded on a company’s balance sheet. Book value equals shareholders’ equity minus preferred stock. Book value per share equals book value divided by the number of shares outstanding. It is approximately equal to the amount shareholders would get if they liquidated the company.

Book value and market value rarely equal each other, as book value is based on historical accounting numbers and doesn’t account for a company’s future earning potential. However, book value does tend to jump around less than stock market prices. The two values are best used in tandem when making investment decisions.

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