Buy on the Cheap (Price/Book Ratio) (Session 4)

money Buy on the Cheap (Price/Book Ratio) (Session 4)
If you made it through price to earnings ratio, price to book ratio will be a piece of cake.
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Buy a Company with a Future (Book Value) (Session 3)

piggy Buy a Company with a Future (Book Value) (Session 3)Book Value is a pretty easy one as compared to Price to Earnings. So let’s get into it we will need it for other calculations.

What is it?

(Total Assets – Intangible Assets (Goodwill) – Total Liabilities)

What does it tell us?

As with price to earnings ratio imagine if you will that you are buying a company but instead of running the company you are closing it out and selling off all the equipment. To do that you have to pay off the debts of course no one is going to let you walk out the door without paying the bills.
So if you have $1,300M in current assets, Current and long term Liabilities of $600M and preferred shares of $450M. Then you have a book value of:
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Buy on the Cheap (Price/Earnings) (Session2)

accounting dollar sign Buy on the Cheap (Price/Earnings) (Session2)To follow up our Graham intro we will investigate Graham’s first insurance technique of buying on the cheap. Graham used a number of ratios to determine if a company is cheap. The first ratio we need to look at is the Price/Earnings ratio.
bullet Buy on the Cheap (Price/Earnings) (Session2) Read More...

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