Sunday, 26 February 2012
WHAT IS BOOK VALUE?
The book value of a company is generally considered its net worth; the book value per share would be the net worth of a company divided by the number of shares outstanding.
There is a need, in considering the book value of a company share, to know what certain terms mean - and who better to explain them than the doyen of investment analysis, Benjamin Graham. His definitions are:
Tangible assets: Assets either physical or financial in character eg plant, inventory, cash, receivables, investments.
Intangible assets: Assets which are neither physical nor financial in character. Include patents, trademarks, copyrights, franchises, good will, leaseholds and such deferred charges as unamortised bond discount.
Graham took the view in Security Analysis that intangible assets should not be taken into account when calculating book value; hence, in this sense, book value per share would be the same as net tangible assets per share (NTA) as opposed to net assets per share (NA).
So, the assets of a company can be either tangible or intangible and, on this point, Benjamin Graham and Warren Buffett appear to have differences in importance.