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Thread: Book Value

  1. #1

    Default Book Value

    Hi all

    Could someone explain whether the Book Value of a company indicated on the Balance sheet has should be taken into consideration.

    Noted a few stocks
    current share price 1.40........book value....1.25

    current share price 38c.........book value....0.25

    current share price 10c.........book value....0.22

    How much weight should one give this piece of information.


  2. #2
    Klogg's Avatar
    Join Date
    Jul 2010
    Melbourne, Victoria

    Default Re: Book Value

    Quote Originally Posted by stargazer View Post
    How much weight should one give this piece of information.
    Depends on:

    - The type of assets on the balance sheet (e.g. cash can be taken at face value, a property that a company overpaid for not so much)
    - The sector in which they work (would alter the type of assets they require)
    - Valuations applied to each of the assets listed, intangible or otherwise
    - If the assets can be sold at the value listed

    and most importantly, look at the rest of the company. Don't look at the BV metric alone. Remember, the Book Value feeds into shareholder equity and thus your return on equity.

    So for a property developer, a high Book Value (more specifically, higher net tangible assets) would infer a large amount of property that they're holding, which would generally serve as a security to investors.
    Whereas if you're talking about a manufacturing company, a higher book value and in effect, lower ROE would mean they need a high amount of capital to keep producing - not good.

    More relevant to the Australian macro picture - You can get a lot of iron ore miners for less than their BV, but the consensus seems to be that there will be a huge increase in supply, thus lowering the actual value of the iron ore mines and their overall book value.

    There's a lot more to be said on the topic, but that's my

  3. #3

    Default Re: Book Value

    Book value in itself tells only a little about a company's value.
    One must also consider at least profit which is a very complicated thing...
    Future profits can only be estimated, a company producing loss today may become profitable in a year etc. This depends on many factors...

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