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BittersweetPotato · 31-35, F
Jersos · 26-30, M
@BittersweetPotato I was getting confused about book value of a share and how the shares are valued as such.
BittersweetPotato · 31-35, F
@Jersos The book value is the value of shares as per the company's financial statements, it is the value of shareholder's equity (Assets less liabilities, sometimes you will subtract preferred stocks too) divided by the number of shares which gives you book value per share (BVPS), and this must be distinguished from the price the share is trading at, in the stock market.
There are so many different methods to value shares, I am not sure your question is clear. Are you asking as to how we can use the BV to value shares? It is useful in calculating a widely used Multiple; the price to book value multiple, which is used by investors to try and arrive at conclusion whether the company shares are undervalued and hence count as an attractive investment.
Have I answered you question?
There are so many different methods to value shares, I am not sure your question is clear. Are you asking as to how we can use the BV to value shares? It is useful in calculating a widely used Multiple; the price to book value multiple, which is used by investors to try and arrive at conclusion whether the company shares are undervalued and hence count as an attractive investment.
Have I answered you question?
Jersos · 26-30, M
@BittersweetPotato Yes!
So book value gives the intrinsic value of a share? And do you mean shareholders' equity being the total fund supplied by the shareholders through buying the shares issued by the company?
So book value gives the intrinsic value of a share? And do you mean shareholders' equity being the total fund supplied by the shareholders through buying the shares issued by the company?
BittersweetPotato · 31-35, F
@Jersos Nope! BV is not the intrinsic value of shares. The intrinsic value is what an investor/analyst "believes" to be the true value of shares, it could be and is actually quite often different from the book value, as well as from the market price (when the market is not efficient!) The intrinsic value is calculated using so many models (e.g. Free cash flow method) where an investor would make different assumptions, projections and input variables in the model to try and arrive at the intrinsic value of a share to determine whether he will overpay if he buys the share on the market.
Book value is basically an accounting value that appears on the company's balance sheet, it is the equity section, you can't say it is the funds provided by shareholders (it is not entirely wrong but not correct as well as equity contains other components too), so the appropriate way of calculating is is company's assets less its liabilities which gives you the net worth of the company (BV).
Book value is basically an accounting value that appears on the company's balance sheet, it is the equity section, you can't say it is the funds provided by shareholders (it is not entirely wrong but not correct as well as equity contains other components too), so the appropriate way of calculating is is company's assets less its liabilities which gives you the net worth of the company (BV).
BittersweetPotato · 31-35, F
@Jersos Glad I could help and I may not be a good teacher too which is why I could not get the information across, I am here if you need anything :)