Calculating the value of a business is difficult, especially when the business is privately owned. Value for a firm's stock is sometimes derived by looking at the value of corporate assets. Other times, the earnings are used. These two methods often generate different answers.
The owner's equity is often referred to as the book value of the company. This does not take into consideration the earning capacity of the company or additional value in equipment. The earning power of a company is important in determining the value of a firm. Since assets can only translate into stock value when they are sold and the company is liquidated, the value of the company is driven by earnings.