[Hot News] [STOCKS] - How Can The Net Stock Value Of A Company Be More Than The Net Equity Of The Company?

Let us consider a hypothetical company "abc" having a book value of its asset of $140,000 which may be split up into $20,000 in cash, $100,000 of inventory and another $20,000 in equipment.

If this same company has a liability of say $5,000 in debt, then the book value of its equity is given by the difference in the asset value to that of the debt it has. In other words, the book value of the equity for company "abc" lies at ($140,000 - $5,000) = $135,000

However, if we assume that there were a total of 10,000 shares being disbursed by this company "abc" into the stock market, the stock market could be trading each of these stocks at a price of $21.50 per stock. This would result in the total stock value or the market value of the company held at $21.50 * 10,000 = $215,000

So how did a company who's equity value being at $135,000 is being traded in the stock market at a price of $215,000? The answer to this question lies in the fact that the market adds additional value to this company's stock for certain intangible assets of the company that cannot be physically accounted for. These values may lie in the talent of the company, the management of the company, the IP or the patent this company owns etc.

It is these intangible elements of a company that acts as a separating entity between the company "abc" and its competitors who may also be having more or less similar physical assets as that of the company "abc".