Post Views: 392 The valuation of a stock is critical to determine whether it is appropriately priced. That would also lead the investor into knowing w...
The valuation of a stock is critical to determine whether it is appropriately priced. That would also lead the investor into knowing whether a stock he is interested in is under-valued or otherwise.
According to investopedia.com, “book value literally means the value of the business according to its “books” or financial statements.
“In this case, book value is calculated from the balance sheet, and it is the difference between a company’s total assets and total liabilities. Note that this is also the term for shareholders’ equity. For example, if Company XYZ has total assets of $100 million and total liabilities of $80 million, the book value of the company is $20 million. In a very broad sense, this means that if the company sold off its assets and paid down its liabilities, the equity value or net worth of the business, would be $20 million.”
Determining the level of value inherent or the level of discount a stock is trading is the percentage of market price to the Book Value Per Share
In summary, add the value of all of a company’s assets, including real estate, equipment, investments and other capital, minus its liabilities.
Divide your answer by the total share in issue and what you get represents what investors would get per-share if the company were forced into liquidation.
Although calls this “a crude but useful tracking device for the number that really counts: intrinsic business value,” Forbes listed billionaire value investor, Warren Buffett, has used this metric for years.
On the Nigerian Stock Exchange (NSE) also, there are stocks that inappropriately priced, given that the market price of a company is a combination of investor sentiments and perception. It is the price the investor is ready to pay for a stock based on tomorrow’s value.
In this first part, INVESTDATA RESEARCH provides data of 20 companies listed on the NSE, their BVPS and market price at the close of trading on Friday, April 7, 2017.