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Best Stocks Have High Book Values.(A)(INVESTOR'S CORNER)

Investor's Business Daily

| March 04, 2002 | COPYRIGHT 2002 Investor's Business Daily, Inc. This material is published under license from the publisher through the Gale Group, Farmington Hills, Michigan.  All inquiries regarding rights should be directed to the Gale Group. (Hide copyright information)Copyright

Byline: CHRISTINA WISE

Perusing a company's income statement can give you a good feel for which way its stock is headed.

Unfortunately, when it comes to book value a balance sheet doesn't provide the same insight.

Book value is fairly straightforward: Simply divide a stock's shareholders' equity by its common shares outstanding. Shareholders' equity is a firm's total assets minus its liabilities.

Dividing a stock's price by its book value per share yields a ratio known as price-to-book value.

Value investors often steer clear of companies with price-to-book values above 1.0 or higher than others in their industry. In other words, they hunt for "bargains." They tend to get excited by a company whose shares are priced at less than its book value.

It sounds great in theory, but in the real world it's the market that decides what a company is worth. The market looks past the simple value of its parts and more toward its future potential for growth.

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