Editing Openai/68df4a3a-428c-8013-a459-5cff8e17edde (section)

=== Assistant: Great question — the answer depends on the context, because economists and finance professionals use both book value an… ===
Great question — the answer depends on the context, because economists and finance professionals use both book value and market value for different purposes.

==== - Definition: Value of assets or equity recorded on the company’s balance sheet (based on historical cost, accounting rules). ====
* Pros: - Objective (comes from audited financial statements). - Useful for measuring capital invested and debt covenants.
* Cons: - Backward-looking (historical costs may not reflect current reality). - Can understate or overstate true value (e.g., land bought 30 years ago is recorded at old price, not today’s market price).

==== - Definition: What the company or asset is worth in the market right now (e.g., stock price × shares outstanding = market value of equity). ====
* Pros: - Forward-looking (reflects investor expectations and future profitability). - Adjusts quickly to new information.
* Cons: - Volatile (prices fluctuate with market sentiment). - May be distorted by speculation or irrational behavior.

==== - For theory & economic analysis: Economists usually prefer market value, because it reflects what people are willing to pay right now and incorporates expectations about the future. ====
* For accounting & regulatory purposes: Book value is often used, since it provides a stable, standardized measure of invested capital.

==== - Economists lean toward market value because it’s more realistic about what assets or companies are truly worth today. ====
* Book value is useful, but it’s more of an accounting record of past investments rather than a reflection of current economic value.

Would you like me to also explain how this plays out in valuation ratios (like Price-to-Book, Tobin’s Q), where economists compare market vs. book directly?