Book Value of a Share is Important Parameter in Selecting a Share
What is the value of an Investment? One shall read balance sheet of a company to know the value of their investments.
Value of investment means the work of the own funds of the company.
Own funds are the money put in the company by its shareholders (by buying its shares).
How Book Value of a company is important to know the value of an investment? To know the value of the investments, we shall study the book value of a company.
Book value is the value of own funds of a company per share.
To calculate the book value one shall divide the net worth (value of own funds) of a company by the number of shares in the market.
What is a Book Value of a share? The book value of a company tells us what the each share of a company is worth.
Means if you bought a share at Rs10, and its book value is Rs11, means you must buy that share.
Also, assume that a company in its IPO offered shares at par of Rs 10 per share, and the present book value is Rs 24 per share, it means that the investment by the shareholders has appreciated by Rs 14 per share.
How book value of a share is related to its market value? If all investors become financially intelligent, no one will buy a share at a price more than its book value.
Means is book value will show that the share of a company is worth Rs100, no body will buy it at Rs.
150.
In other words the market value of share will be equal to the book value.
But, if a company is doing hard for modernization and expansion of its business, it indicates that the turnover and profit of this company is going to improve in future.
Then the investors gambles with an expectation of future benefits.
In this case investors may agree to buy shares by paying more than its book value.
Therefore, it is possible for the market price to be more than the book value if investors think that the company has growth potential and they have confidence that the company is likely to perform better than it is doing at present.
How can the Book Value of company guide us in buying a share? Some times the book value of a company exceeds its market value.
A company which is performing reasonably it will have a good book value.
It may be because of the global meltdown, lower market demands, low market capitalization and reach, or fierce competition, the investors may have ignored this share.
This will lead to a lower market value than its book value.
Such shares will be a very good buy for future gains
Value of investment means the work of the own funds of the company.
Own funds are the money put in the company by its shareholders (by buying its shares).
How Book Value of a company is important to know the value of an investment? To know the value of the investments, we shall study the book value of a company.
Book value is the value of own funds of a company per share.
To calculate the book value one shall divide the net worth (value of own funds) of a company by the number of shares in the market.
What is a Book Value of a share? The book value of a company tells us what the each share of a company is worth.
Means if you bought a share at Rs10, and its book value is Rs11, means you must buy that share.
Also, assume that a company in its IPO offered shares at par of Rs 10 per share, and the present book value is Rs 24 per share, it means that the investment by the shareholders has appreciated by Rs 14 per share.
How book value of a share is related to its market value? If all investors become financially intelligent, no one will buy a share at a price more than its book value.
Means is book value will show that the share of a company is worth Rs100, no body will buy it at Rs.
150.
In other words the market value of share will be equal to the book value.
But, if a company is doing hard for modernization and expansion of its business, it indicates that the turnover and profit of this company is going to improve in future.
Then the investors gambles with an expectation of future benefits.
In this case investors may agree to buy shares by paying more than its book value.
Therefore, it is possible for the market price to be more than the book value if investors think that the company has growth potential and they have confidence that the company is likely to perform better than it is doing at present.
How can the Book Value of company guide us in buying a share? Some times the book value of a company exceeds its market value.
A company which is performing reasonably it will have a good book value.
It may be because of the global meltdown, lower market demands, low market capitalization and reach, or fierce competition, the investors may have ignored this share.
This will lead to a lower market value than its book value.
Such shares will be a very good buy for future gains
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