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Saturday 29 June 2013

Book Value

Definition of book value:  The value of a security or asset as entered in a company's books.

In simple words, book value is the value we get if the company is sold.  The valuation of assets and liabilities are valued by the auditor and the company so apply margin of safety.  It is one of the best attributes to ascertain the intrinsic value of a stock, but remember to consider various other attributes. 

As said, be careful and remember we will get paid the book value only if the company is liquidated, which would not occur in the near future.  If the company could raise the book value year after year, stock price will also increase if not in the near term, but sure in the future when buyers show interest on the stock.  During a bull run, investors will show interest on companies with good price to book value ratios.

Many outdated companies may be found with best book value to price ratios so select the companies that shows book value increase year after year.  Book value can also be increased if the company issues new shares and thereby raising share capital.  This type of raise in share capital should excluded while valuing a share.  We should only take into consideration book valve appreciation shown by the business and not any other methods such as onetime profit and share capital issues, one time special dividend, etc., as these would not occur year after year.


I am sure you will find one best stock to buy if not wait until you get the best price.  Remember you should wait as long as 5 years after buying a stock.  Don't worry if the price goes down deeper, instead buy some more if you can.  If a stock could allow you to wait for 5 years! that is a good stock.  Until then be happy getting dividends.  A good stock will not only give dividends year after after, but it will also increase them every few years once.  Happy investing...   

If you any doubts and comments, please let me know through comments.  Thank you.

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