What Is Book Value Of Stock?
To some extent, book value is used in evaluating the reasonableness of the market price of a stock. However, it must be used with cautions. The fact that a stock is selling at less than book value does not necessarily indicate a bargain. Book value is a historical concept representing the amounts invested by stock holders plus the amounts earned an retained by the corporation. IF a stock is setting at a price above book value, investors believe that management has created a business worth more than the historical cost of the resources and entrusted to its care. This, in essence, is the sign of a successful corporation if the excess of market price over book value becomes great, however, investors should consider whether the company’s prospects really justify a market price so much above the underlying book value of the company’s resources. On the other hand if the market price of a stock is less than book value, investors believe that the company’s resources are worth less than their c
