When Picking Stocks, Ignore Price-To-Book Value Ratios.(MAKING MONEY)(INVESTOR'S CORNER)

Byline: DAVID SAITO-CHUNG

In some cases, knowing a company's book value is critical. Particularly when it's going bankrupt.

Some corporations file for bankruptcy to get back on their feet financially. Others shut their doors for good, leaving investors with a mess.

After assets are sold, creditors and bondholders get the first grab at what's left. Next in line are owners of preferred shares. Finally, holders of common shares get what's left -- if anything is left.

If you follow all of IBD's rules on how to select stocks, you'll never have to go through this. The shares of a firm going bankrupt dive in price, from 30 to 15 to 5 to 1 or less. You'd never touch such a stock.

To find a great stock, don't consider its book value or its price-to-book value ratio, a common valuation measure. Focus on the stuff that makes a stock truly great: steady and strong earnings and revenue growth; a stock price that's rising faster than the market; being part of an outstanding industry group; evidence of increasing ownership by institutions; a healthy market; and, finally, a good base.

To get book value, first figure out net assets, or total assets minus intangible assets, such as goodwill. Subtract ...