Between the book value of assets and the book value of debt defines the book val
ID: 2655721 • Letter: B
Question
Between the book value of assets and the book value of debt defines the book value of equity. If you check Yahoo finance, you could see that Apple (ticker: AAPL) reports a book value of equity of $112 billion as of August 27, 2015. a) On Yahoo finance, find Apple's market value of equity which is reported as market capitalization or market cap. b) How Apple's market value of equity compares to its book value? Does it make sense? c) Download daily prices starting June 1, 2015 through August 21, 2015 for AAPL stock and compute the average traded volume and average closing price.Explanation / Answer
a. On Yahoo finance, Apple's market value of equity (market capitalization) as of 1st September is $625 billion. The market capitalization can be calculated by multiplying the market price of per share of Apple and the number of outstanding shares in the market.
b. The positive difference between the market value of a share and book value of a share is the premium that the stock buyers are willing to pay to purchase the common stock of the company. This premium indicates that the market (stock buyers) expects that the company will be a going concern and will generate positive value in the future.
Apple's market value is 5.58 times its book value which means the market expects the company to remain profitable in the distant future and hence the multiple is higher than one which makes sense given the historical track record of Apple's performance.
c. The average traded volume and average closing price for AAPL stock starting June 1, 2015 through August 21, 2015 comes out to be 50,522,025 and $123.64 respectively
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