AccessMyLibrary provides FREE access to over 30 million articles from top publications available through your library.
Create a link to this page
Copy and paste this link tag into your Web page or blog:
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.