As from the past few days I have been talking about market value and book value. Now lets' understand how investors decide to buy stocks either on the basis of market value or book value. | Arshnoor Singh

As from the past few days I have been talking about market value and book value. Now lets' understand how investors decide to buy stocks either on the basis of market value or book value.

Book value is based solely upon the company's reported financial condition while market value is primarily based upon the company's cash flow and the public's confidence in how the company will do in the future.

The two values can be the same, close to the same or quite far apart. If the book value of a company is more than the market value. It could mean that public interest or confidence in the company or its industry might not be as high. If the market value is higher than the book value, the public may expect the company or industry to take off.

A person looking at XYZ Company for instance might note that its market value is higher than its book value. If XYZ Company has little in the way of tangible assets but makes a lot of money off of those assets or has potential to make a lot of money in the future, its higher market value would make sense.

If book value is more than market value, many investors will see it as an opportunity to buy stock at a low price for a company that does well. Others may see it as an evidence that the company or its industry are not going to be relevant to them later.