book value | Choose Stocks Wisely

Price to Book

When searching for a company that might satisfy my investing criteria, I’m looking for a situation where the market capitalization (current stock price multiplied by the number of outstanding shares) is less than the book value (equity) of the company. That is, I’m looking for a company where the stock market is pricing that company for less than the value being assigned to it by the internal accounting function. Thus, my P/B filter is set to under 1.0. My goal is to buy at a low price and that means buying all the equity I can get for my dollar. So, the P/B is the best place to start filtering for low-priced stocks, in my view. […]

The term book value is an accounting term that simply refers to the value(s) we record on the books for the various accounts tracked by a company. We track the values of the resources a company has to work with, namely assets. We track the values of the obligations assumed by the company to help support its asset structure, namely liabilities. The excess of the assets we record over the liabilities we record is the equity, the remainder that represents the net book value of the company. […]