The book value basically refers to how much was actually paid for the assets with regard to ongoing sustained reduction in purchase prices due to depreciation or a temporary reduction represented by value adjustments. The book value of assets of the company is largely determined by accounting conventions. For example, for the compilation of statutory statements according to Czech accounting standards, it is immaterial whether the enterprise has control over the benefits of the asset. What is important is whether it holds ownership rights to the asset. Book value is an indicative value lacking any evident value when assessing performance and determining the value of the company.
According to the International Valuation Standards, the market value is the estimated amount for which an asset or liability should exchange on the valuation date between a willing buyer and a willing seller in an arm’s length transaction, after proper marketing and where the parties each acted knowledgeably, prudently and without compulsion. In the case of businesses in the Czech Republic, we struggled to quantify the market value of equity due to the absence of market data. The shares of the vast majority of companies are not quoted on a regulated market and therefore their market price is not known. The only way to quantify market value is therefore ex ante approximation using traditional valuation methods.
The objective of this paper is to analyze market-value-added development in the period under review in terms of key financial drivers of the enterprise's income-based value (growth in sales, profit margin, fixed assets and working capital investments, capital structure, and weighted average cost of capital (WACC)). We suppose, that the source of deviations of book (accounting) value of assets from market value is the absence of specific intangible assets, which the company does have, but does not report for various reasons on its balance sheet. These items can be divided into: 1) Identifiable and individually valuable intangible assets (e.g. databases, brand, domain names), and 2) Primary goodwill or "badwill," which occurs only when the return on invested capital (ROIC) differs from WACC, i.e. the return required by investors.