markets, financeI would like to know whether my reasoning is correct.
Differences between market value and book value shouldn’t exist in “a perfect world”, since the value of a firm is whatever someone would be ready to pay for it, which is market value. In that sense, book value does not correctly reflect the value of the firm. This is due to incorrect (accounting) valuation of assets and/or debts. In “a perfect world”, everything in the firm would be continually re-evaluated according to the market, and not according to past prices and/or accounting procedures. The discrepancies between book value and market value are in due to accounting procedures which do not (or not frequently enough) re-evaluate the value of the firm’s assets or debt.
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