There are several ways to define a companys worth or value. One of the ways you define value is market cap or how much money would you need to buy every single share of stock at the current price.
Another way to determine a companys value is to go to the balance statement and look at the Book Value. The Book Value is simply the companys assets minus its liabilities.
Book Value = Assets - Liabilities
In other words, if you wanted to close the doors, how much would be left after you settled all the outstanding obligations and sold off all the assets.
A company that is a viable growing business will always be worth more than its book value for its ability to generate earnings and growth.
Book value appeals more to value investors who look at the relationship to the stock's price by using the Price to Book ratio.
To compare companies, you should convert to book value per share, which is simply the book value divided by outstanding shares.
The articles in this series:
- Earnings per Share EPS
- Price to Earnings Ratio P/E
- Projected Earning Growth PEG
- Price to Sales P/S
- Price to Book P/B
- Dividend Payout Ratio
- Dividend Yield
- Book Value
- Return on Equity
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