Book value

Positional trades:
Now let's another topic called as Book Value

Book value is nothing but the value of assets minus the value of liability

Let's say Assets are 1 lakh and liability is 60000 then book value is 40000 ( 1 lakh - 60000)

Now we compare the book value per share (BVPS)with the market price.

Book value per share is nothing but

[total book value ÷no of outstanding shares]

Let's take another example

Assets of 54 L
Liability of 32L
No of shares 1 L

Book value per share- (54L - 32L) ÷ 1L shares. So book value is 22

Book value is also called as enterprise value...It is the value of firms assets after deducting liability.

Usually Book value is compared with market value....

Market value means the current market price of the share...

So if BV(BOOK VALUE) is 30 and Market value is 20 then share may be considered undervalued

BOOK VALUE- Imp points

1) Book value is used for valuations of Non Banking Finance Cos (NBFC)

Something called as Price to Book value which we will discuss later.

2) Book Value should not be seen closely in companies like IT cos or non manufacturing companies as these companies don't have significant assets and the book value can be understated.

3) Price to Book value

This is a ratio also called as 
P/BV Ratio.

As the name suggests PBV is nothing but price of a share ÷ book value

Price of a share is 50
Book value is 20

So PBV is 2.5 or we can say that the share is trading at 2.5 times it's book value.

Just like PE we need to understand the P/BV of the industry in which the company is operating and compare it with the leaders of the industry or the top 5 companies to get a fair idea....

Written by - #Yash

Edited by  - #Raj

                    #ow