In accounting, we look at net asset of the Company as an estimated guide of the value of the Company. However, the market value of the Company might differ from the book value (i.e. net asset of the accounting record).
Auditor can request management to analyze the difference between market capitalization and book value.
If market capitalization > book value. Auditors should consider what are the premium the investors are paying? Any figures on the balance sheet does not reflect true picture? Does the figure stated in accordance to accounting standards?
If market capitalization < book value. Auditors should consider the impairment issue for all assets and goodwill.
Monday, August 3, 2009
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2 comments:
what is market capitalization ? could u put it into a simple word ?
Hi there?
Market capitalization can be computed as follows:
Number of the Company's shares x Share Price ( for publicly traded company)
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