Book Value Explanation
When deciding on the investment in a particular company through the purchase of stocks of the company, many investors refer to its book value as one of the components that guide their decision regarding the investment.
A company's value can be calculated in many ways. One of them is through market capitalization, which represents the amount of money you will need to buy all of the shares of stock at the prevailing market price.
Another method for determining the value of a company is through its Book Value. The latter can be found in the balance statement of the company. It is calculated in the following way:
Book Value = assets - liabilities
The Book Value of a company in its nature represents the money you will have after you have sold all of the assets of the company and have paid back all of the company's obligations.
A promising and growing business will have a value of greater than its book value. This will be caused by its ability to make earnings and growth on behalf of its owners.
In order to make realistic comparisons between different companies, you should convert to book value per share. It is calculated by dividing the book value by the number of outstanding shares.
The price to book ratio is often used by investors to look at the relationship between the book value and the price of the stock.
Rate this article : Low | High |
- Pick the Best Stock Type for You
- Cyclical vs Non-Cyclical Stocks
- Dividend Yield Calculation and Drawbacks
- Dividend Payout Ratio Calculation
- Dividend Yield Explanation
- Stock Beta Value
- Operating Cash Flow Implications
- Stock Valuations - Key Interest Rates Relationship
- Price to Book Ratio Calculation
- Return on Equity Calculation and Drawbacks
- How to Benefit from Short Sellers
- Earnings per Share EPS Calculation
- PEG Ratio Calculation
- Simple Return vs Compound Annual Growth Rate Formula
- Price to Cash Flow Ratio vs Free Cash Flow
- Institutional Investors and Their Influence on Stock Trading
- Company Valuation Methods - Debt Evaluating
- Company Valuation Methods - Management Effectiveness Ratios
- Company Valuation Methods - Debt Evaluation Formulas
- Determining the Right Stock Price
- The Importance of Earnings in Evaluating Stocks
- Price to Sales Ratio Calculation
- Price to Earnings Ratio Calculation
- Cash Flow Valuation
- Calculate Return on Investment
- Relative Strength Indicator
- Non-Financial Characteristics of a Successful Stock
- Per-Share Price vs Market Cap
- Value Stocks vs Growth Stocks
- Identifying a Value Stock
- Small Cap Stocks Opportunities and Risks
- Stock Analyst Recommendations - Should We Trust Them?
- Value - Growth Stocks Comparison
- Investing in Hedge Funds: Pros and Cons
- Price to Sales Ratio (PSR) Explanation
- Funds of Hedge Funds
- Investing in Interval Funds
- How to Select a Winning Stock from a 52-Week List
- Earnings Estimates and Stock Selection