Book
value is the calculated dollar
per share value of a company.
To calculate book value, subtract
liabilities from assets, then
divide by total number of outstanding
shares.
Book
value has several important
limitations that investors need
to understand, the following
is a brief description of these
limitations.
When
using book value, companies
should only be compared to others
in the same industry. The ratio
is influenced by the following
factors which cause this limitation.
First, certain businesses have
different asset bases from which
they run their business (e.g.
a car manufacturer versus Google).
Secondly, the size of the company
changes the ratio since larger
companies have more outstanding
shares than do smaller ones.
Book
values can also be inaccurate
or misleading because they do
not reflect changes in market
valuations, inflation, appreciation/depreciation
(only recognized when sold),
total costs of repayment of
liabilities, different accounting
practices or methods or others.
Even
with these limitations, in general,
there has been a long term correlation
between book values and stock
prices.
Also
see Book
value per share
Also see Price
to book ratio
United States
Canada
