Problem: Another measure of value is the company's assets less liabilities or shareholder's equity. We call this the book value of the firm. However the actual fair market value of the firm's assets and liabilities can be far different than the book value which has important implications for valuing a firm. Go to the Internet and compute UPS and FDX book value or also known as shareholder's equity . Then compute the market value of the firm by
Q1. Why is there a difference between the book value and market value ? After all if you buy all the stock aren't you simply buying the total assets and assuming the total liabilities of the firm?
Q2. Now divide the market value you obtained by the book value to get the ratio. We often call this the firm's multiple of book value. What if anything does the difference in ratio between the two companies indicate about the relative strength of your two companies?