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You said that the true market value of a company is the market value of the shares on the stock exchange and not the market value of net assets.
For instance, if a company has the following net assets:
Share capital = $100,000
Share premium = $60,000
Retained Earnings = $300,000
Revaluation reserve = $50,000
Total equity = $510,000The market value of the shares in the stock exchange is $150,000 then according to this the market value of the business is $150,000 which is the shares value traded in the market at the time of the sale of business?
But the actual worth of the business should be $510,000 because the value of our assets is equal to the total net assets (isn’t it?)
Thank you!
Hi,
Yes, what I said is correct regarding the value of the business. The net assets do not necessarily include all assets (think internally generated brands) plus it doesn’t take account of the future prospects of the business.
If the market value is less than the book value of the assets then this would be an impairment indicator under IAS 36.
Thanks
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