Walmart's Book Value Versus Market Value

Wal-Mart’s Book Value Versus Market Value

The comparison of market value and book value is an important factor during the investment decisions of the investors in order to formulate the portfolio which is diverse enough that the returns from these portfolio will be maximum which is achieved only through careful comparison between the market value and the book value of the stocks of the companies in the portfolio. The book value and the market value both have their own contexts. The characteristic of book value is such that it is related to the management’s decision of the company. It is the value presented in the balance sheet at any date and the concept of book value is based on the historical cost concept which means that the assets, liabilities and equity all are presented in the balance sheet on the values which is incurred at the time of original transaction relevant to these three items. For example, the land amounting $ 100 million is purchased and presented in the balance sheet and will remain same till time when land is sold or disposed off i.e., no longer is used for business. The importance of comparing the book value with the market value is greater under the application requirements of US GAAP where revaluation in some assets of the company is not allowed such as land etc (John, 2010).

The book value of the company is presents the best judgment of the management of the company regarding its position but market value of the company is different from the book value of the company. The market value of the company incorporates the future expectations of the investors regarding sustainability and growth of the company. The market value of the company is based on the best estimation of the potential and growth of the company using the relevant and important information in the market. This means that the comparison of book value and the market value of the company is important in order to secure the investment through wise decision in the formulation of the optimal portfolio. The book value of the company is determined using the financial statement but only at specific date but the market value can be determined anytime using the current stock price of the company in the market on the date of analysis.

The financial statements are historical records of the company representing the financial position of the company in past that is the change in the financial health during the previous period. The corporations are operating in the dynamic environment which means that the value of the assets, liabilities and stocks of the company change continuously in accordance with the reaction of the investor in the market. It is important here to mention that the assets of the company experience more discrepancies in comparison to the book value and the market value of the asset in comparison to the liabilities which experience lesser discrepancies in reconciliation of both the balances (John,