If market values of equity exceed book values of equity, then:

Question

Quizplus · Accepted Answer

When market values of equity exceed book values of equity, it indicates that the market has a positive perception of the company's future earnings and growth potential, which makes the stock more attractive to investors. Therefore, the profit potential is expected to be attractive relative to the level of risk, which is why the market value is higher than the book value. It has nothing to do with rapid depreciation, accrual-based accounting or holding too much cash.

If Market Values of Equity Exceed Book Values of Equity