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Book value is (not) equal to market capitalisation

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Book value is (not) equal to market capitalisation

  1. 1. Why book value is(not) equal tomarket cap?
  2. 2. Following 7 minutes• Book Value vs. Market Capitalisation• Investor‘s vs. Accountant‘s point of view• Conlusion and recommendation
  3. 3. Book ValueTotal Assets – Total Liabilities
  4. 4. Market CapitalisationNumber ofShares×
  5. 5. Price × Book Value0%10%20%30%40%50%60%70%80%90%100%Coca Cola Apple McDonaldsBook ValuePrice per shareCoca Cola Apple McDonaldsSource NYSE NASDAQ NYSEPrice per share 42,24 449,98 102,92Market Cap 188.13B 423.02B 103.21BP/BV ratio 5,76 3,58 6,75
  6. 6. “This spread is particularly caused byfundamental, technical a psychological aspectsof price movement.”
  7. 7. “Yes, but I think it is more caused by aninaccuracy in accounting…“
  8. 8. “…that is caused by insufficient legislation ofaccounting for intangible assets.“
  9. 9. UFF
  10. 10. Legislation×
  11. 11. Intangible AssetsAn Intangible asset in an identifiable non-monetary asset without physical substanceheld for use in the production or supply ofgoods or services, for rental to others, or foradministrative purposes.(IAS, 38)
  12. 12. Criteria for initial recognition• Must be identifiable• Expected future economic benefitsattributable to the asset would flow to theentity• Cost could be measured reliably• Asset is controlled by the entity
  13. 13. Examples of Intangible AssetsLogoCompany‘sreputationResearch andDevelopmentDomain NamePatentCopyrightutility modelsindustrialdesignsKnow-howtrademarksBrand Value????Skillful Staff??? ?Goodwill?
  14. 14. Revaluation• Fair market value• Possible only if there is an active market foran asset
  15. 15. Consequences• Not possible to recognize existing assets intheir fair value (e. g. recipe for Coca-Cola orCoca-Cola logo)• Not possible to revaluate recognized assets• => Book value is undervaluated
  16. 16. Conclusion and RecommendationIf company could recognize and revaluate mostof their intangible assets this could reducespread between market cap. and share valueand company‘s value would be moretransparent – investments would be safer.
  17. 17.