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Hi sir,
Exam 8, we value NCI based on share price ($1.65 per share) but why don’t we value net assets as the same way (80,000 shares x $1.65 per share = $132,000)?
Regards,
Because those net assets are stated at historical cost less accumulated depreciation whereas the share price is driven by a number of uncontrollable factors including market sentiment
Where the stock market likes the look of a company (or its product or its new management or the directors’ announcement as to where they anticipate the company will be in (say) 12 months’ time), that market sentiment will persuade the punters to take an educated guess about the likelihood of success and they will buy. Often in HUGE numbers.
And that will drive the share price up
So share price is not determined by net asset book values (maybe sometimes but very, very, very rarely)
OK?
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