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Unformatted text preview: Firm's asset value is not actual value of a firm. Requires careful attention to off balance sheet items that impact the firm's fair value (eg. operating leases). It does not reflect future growth p;otential of the firm. Strength of market value approach: Price of a stock tells investors are seeing what value in the firm.It takes care of teh future growth p;otential of the firm. Weakness of market value approach: A firm may be overpriced or underpriced depending on market condition. Which method is better? Book value is a conservative approach on asset valuation.Market value is a more realistic and business approach. This is an updated valuation and reflect its current value. Market value is a better measure as market price of any firm is considered as right price as it is the price of the stock investors perceive. Though for investors who are hunting for undervalued stocks (they are also called value investors), book value of a firm is more important....
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This note was uploaded on 08/31/2010 for the course MSO PSY taught by Professor Hood during the Three '10 term at University of Adelaide.
- Three '10