What is the main difference between market value and book value?

The main distinction between market value and book value lies in how they are determined and what they represent in the context of a company's financial standing. Market value is defined as the current price at which assets can be bought or sold in the marketplace. It is influenced by various factors including investor perceptions, market conditions, and future growth prospects, reflecting the real-time, dynamic nature of asset pricing in the open market.

In contrast, book value is derived from the accounting records of a company, representing the value of its assets minus liabilities as recorded on the balance sheet. It often reflects the original cost of assets, adjusted for depreciation, and does not account for the current market conditions or investor sentiment. Thus, market value can fluctuate significantly from book value, as it incorporates expectations about future performance and external economic factors.

Understanding this difference is crucial for corporate finance decisions, as market value is often considered a more accurate measure of a company's worth at any given time compared to book value, which can be largely static and potentially outdated.