Question

What is the difference between book value per share of common stock and market value per share? Why does this disparity occur?

Short answer

The book’s value of the common stock is the value presented in the balance sheet, and the market value is the value of the company’s shares in the tradable market. The disparity occurs as a result of fluctuations in the company’s earnings.

Step-by-step solution

Difference between the book value per share and the market value per share

Book Value per share (BVPS)	Market Value per share (MVPS)
Books value per share is defined as the net asset value per share of the company on the balance sheet date.	Market value per share is defined as the current price of the single share in the market.

Reason of difference between the BVPS and MVPS

The difference between the book value per share and the market value per share arises due to the change in the income earned by the company. The book value per share is fixed, but the market value per share fluctuates. The MVPS of the company increases with the increase in its income and vice-versa.