In Q70, Book Value per Share is calculated using the balance sheet values for Common and RE as follows: ((Common Stock + Retained Earnings) / Share Outstanding) + EPS net of dividends However, when calculating MVA, the Market Value is calculated as (Shares Outstanding x Market Price) + MV of Debt I see that this is also stated in the book (Bk 4 pg 294). Why does book value of equity include RE, but market value ignores it? Is the RE assumed to me implicit in the stock price? I think I’m missing something basic here. Any help is appreciated.
It does because in MVA you are using the market price of the stock and in an implicit way it is built in there. It is market value what this metric uses… Also remember that MVA is the Market Value of equity plus the market value of debt minus the invested capital (Common equity plus long term debt or net pp&e plus nwc).