Saturday, 24 December 2016

Book Value v Price/Earnings 24/12/16

Why I use Book Value.

Book value can be a better metric than the P/E, or price to earnings, ratio in certain circumstances, but a company’s true worth is usually best determined by using the two measures together or in conjunction with other valuation tools.

The book value is essentially the total value of a company’s assets as read off a balance sheet. When stock market analysts identify trending of a cycle of losses and it is difficult to get an accurate forecast of potential earnings, using the book value as the primary measure of a company’s worth is commonly considered the best option.

The P/E ratio is, however, perhaps the most widely used metric tool by traders and investors, especially value investors. The P/E ratio is a per share estimated value that indicates the amount investors are willing to pay per dollar on the earnings of a company. This tool is considered excellent for comparing stock values within an industry and sometimes across the stock market as a whole. When comparing companies with like productions, the worth of one company’s shares is easily evaluated against those of another company. Basically, the lower the P/E ratio, the better, although stocks with a higher P/E ratio may still be considered good value stocks.

Analysts rarely look at only book value or only P/E ratio. Examining the two valuation measures together, or along with other analytical tools of value measurement such as the salvage value of a company's assets, is considered a more reliable strategic approach to gaining an accurate estimation of a company's true worth.

Book value is considered helpful in evaluating the underpricing or overpricing of a stock, although it falls short by not factoring in a company's realistic prospects for growth and expansion. The book value is best used in conjunction with other tools and indicators to estimate a company’s true worth. Equity investors often compare the BVPS to the current market price of a stock. A market price/BVPS ratio helps to attribute a basic value to a share.

Or .In my own words Book value gives us what the assets are truly worth , and Shiller or P/E tries to estimate the unfathomable expected earnings .

           And May



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