Investing 101: Getting to grips with a company’s book value

Julie Brownlee, Fsp Invest, 18 Aug. 2014

Tags: book value, what is book value, african bank book value, how to use book value, buying undervalued shares,



As the rescue of African Bank gets well underway, if you’ve read anything in the financial press about the process, you’ll have seen the term ‘book value’.

In African Bank’s case, the rescue plan involves splitting the ‘good’ bank (with a book value of R26 billion) from the ‘bad’ bank (with a book value of –R17 billion).

So what does book value mean?

Read on to find out…



What is a company’s book value?


Book value is the value of all a company’s assets, minus all of its liabilities. It’s a measure investors often use to try to value a company.

If you’re looking for a company’s book value, you’ll find it in its latest financial statements on the balance sheet. It will be under the term ‘net assets’ or ‘shareholders’ funds’

If an analyst or investor wants to work out how much a company would be worth if it sold off all its assets, this is the figure they use.

It’s a common measure for valuing banks and house building companies.


How to use a company’s book value


Some analysts use a company’s book value to try to unearth undervalued shares.

For instance, if you could buy a company’s shares for less than its book value. This means the company’s price to book ratio would be less than 1.

So you could buy the company, sell its assets and still make money.


What to watch with book value


In some cases a company’s book value also includes its intangible assets.

Intangible assets are things like the value of a brand. It’s hard to put a value on things like this. These intangible assets may not be worth as much as the company and its accountants believe.

If you want to ensure you’re getting a truer picture of a company’s value, minus a company’s intangible assets from its book value. The resulting figure is what the hard assets of the company are worth. For example, cash, machinery and property.

So there you have it, what a company’s book value is.

*********** Recommended Product ************

How would you like to bank 1,589.95% in a matter of months?

Since the 7th of June 2013 my system has had a win rate of 79% and banked my Capital Wave Trader members cumulative gains of 1589.95%, and that's about to get better... When my system gets on a run, it really pays off!

My last hot streak delivered 7 winning trades in a row, and the one before that delivered 11 winning trades in a row! The next hot streak could be just around the corner.

Today, I want to give you the chance to join me and start reaping consistent gains of 144.93%, 105%, 101.04%, 70.08%, and 60% within weeks...

Click here for more.

*******************************************


Related QA

Pic
d.c.heger asked:
MY QUESTION IS – I bought Bitcoin & Etherium some time ago – at first they grew nicely but now they are lower than what I paid for them. Should I [read more]
Published at 04 Apr. 2018 in: Investing 5 shares due to rocket 1 Answer
Pic
kavesh.maharaj.73 asked:
Hi Josh. I would like some advice on TFSA. I can get an interest rate of 7.8% nominal at a bank if I invest the R33k upfront in a fixed deposit [read more]
Published at 19 Mar. 2018 in: Investing Tax free savings vehicle 2 answers
Pic
kavesh.maharaj.73 asked:
Hi Josh Quantum wants to buy back shares from shall investors at what I think is a low price of around R3.86. You tipped the share in February [read more]
Published at 14 Mar. 2018 in: Investing Real wealth 5 answers
Pic
elizastrydom asked:
Hi Timon I am interested in registering for your Red Hot Storm Trader service. I am already a Red Hot Penny Shares investor. My question is [read more]
Published at 28 Feb. 2018 in: Investing Trading platform and broker 1 Answer
Pic
ManuE asked:
I have an interest in investing in Bitcoin, I just don't know how. If I buy Bitcoin with R15 000, how much can make (Return On Investment)? [read more]
Published at 25 Feb. 2018 in: Investing Investment 1 Answer

Related articles:


Latest:

Comments
0 comments



 
 


Youtube Twitter Facebook

Connect with us:    

POPULAR TOPICS
  • Accelerated Investor