Net asset value per share can also be referred as book value per share. Book value or carrying value means the worth of the business based on the financial statements. The value of assets is based on original cost less depreciation, amortization or impairment. There are many ways of valuing assets in the financial statements: historical cost, lower of cost or market value.
To derive at Net Asset Value per share, take total assets subtract total liabilities divided by number of outstanding ordinary shares.
Market value per share is the price in which buyers are willing to pay in the open market (London Stock exchange).
Book value per share and market value per share can yield massive disparity due to the following factors:
1) Possibility
Whether asset are value at historical cost, book value or market value. The ability to determine if an equipment is measure at fair market value is higher or lower than book value.
3) If book value is greater than the market value, it might spell out that investors lose confidence in the company. Investors might treat that company is incapable of generating future cash flow and earnings will fall.
4) The method of depreciation (straight line, reducing, sum of years’ digits or productive output method) used for each assets. The method is important in deriving the book value.
5) Investors hoping price of share will rise and hence look for cheap stocks to invest in. As the investors deem that the stock of company is undervalue, hoping future returns will be high, hence boost up the market price of share.
6) Market value of stock is dependent on the demand and supply. When there is readily available stock for investors to buy in the stock market, stock price will increase. On the contrary, investors sell their stock and there is willing buyers, market price for share will drop.
7) If company is to perform well and earnings show growth consistently, investors see it as a potential stock, market price will rise regardless of good or bad
Property, plant and equipment (IAS16) defines as tangible assets that are able to reap economic future benefits and cost and measured reliably. Apart from using the cost method, Revaluation method can be used. Property, plant and equipment should be measured in fair value model. IFRS13 Fair value measurement is an amount in which buyer offers and seller accepts in exchange for the asset in an orderly transaction between market participants at measurement date.
Intangible assets (IAS38) such as contracts in progress should be measure in market value. Discounted present value should take into consideration the time value for money and the risk of inability to finish the project.
Investment Property (IAS40) should be measure at fair value. Any changes in fair value (gain or loss) should be recognised in the income statement in the period in which it arises. The treatment is different from IAS16, such that any revaluation gain to be excluded from income
The method of depreciation the company uses is the straight-line method. The straight-line method is the most common method of calculating deprecation; therefore, it makes logical sense that this is the method that Lowe's Home Improvement uses.
A strong balance sheet gives an investor an idea of how financially stable the company really is. Many professionals consider the top line, or cash, the most important item on a company’s balance sheet. The big three categories on any balance sheet are “assets, liabilities, and shareholder equity.” Evaluating Barnes & Noble’s assets for the time 2014 at $3,537,449, 2013 at $3,732,536 and 2012 at $3,774,699, the company’s performance summarizes that it is remaining stable. These numbers reflect a steady rate over the three year period. Like assets, liabilities are current or noncurrent. Current liabilities are obligations due within a year. Key investors look for companies with fewer liabilities than assets. Analyzing this type of important information, informs a potential investor that if the company owes more money than they are bringing in that this company is in financial trouble. Assessing the liabilities of the balance sheet, for the same time period, it is also consistent with the assets. The cash flow demonstrates a stable performance in the company’s assets and would be determined that the liabilities of this company are also stable. Equity is equal to assets minus liabilities, and it represents how much the company’s shareholders actually have a claim to. Investors customarily observe closely
In Inventories are sold, and they are purchased on a continuous basis. Due to the varying market conditions, the prices of the inventories may change and as a result, valuation of inventory is imperative. There are various methods that organizations use in valuing stocks. The most common methods are:
Investors in the stock market judge earnings growth against two figures: the average industry earnings and the estimated earnings for the company. If analysts predict earnings to be above the industry average, a company’s stock price will usually rise. If companies report earnings higher than predicted, stock price will typically rise even more.
According to Buffett, intrinsic value is an all-important concept that offers the only logical approach to evaluating the relative attractiveness of investments and businesses. Intrinsic value can be defined simply: It is the discounted value of the cash that can be taken out of a business during its remaining life.
...ciates its assets on a straight line basis. Both IAS 16 and GAAP, depreciates assets over its expected useful life.
Primarily, financial managers look at the market price in maximizing the value of the firm. The market value is the present value of the net cash flow divided buy the risk. Investors consider the firm’s future and present earnings, disadvantages or risks and other factors that will influence a firm prior to deciding to create an investment decision and the market price of the stock that will reflect all the information considering these factors (Arain, 2011).
Janice Corporation use large number of assets and depending on the types of financial assets the fair value is required. However, if the market is not active for trading the asset, it will be difficult to determine the fair value for an asset. Especially, when market can be so erratic, the methods can be used to determine fair value. The fair value measures require applying market price and referring to prices of similar securities; if there is no alternative, the companies employ models to determine fair value (Nally, 2008). In addition, the recommendations for Janice is that they must identify or include all the assets in valuation, base their business valuation on realistic cash flow forecast and business risk assessment, and recasting historic financial reports for valuation (Valuadder, 2007). In unstable market, the fair value measurement provides guidance on estimating the fair value of an asset when the volume for the asset is decreased, assessing a debt security, and improving disclosures. Financial assets are subject of the accounting and vary in degrees. Fair value can be used ongoing basis, and the changes in fair value go through earnings but only for trading securities and derivatives. The company should report the changes in the fair value of available for sale securities in the
1. Fundamental Outlook: One of the most important factors that influence stock prices is the fundamental outlook of the underlying company. The earnings per share (EPS) and the Price to Earnings ratio (P/E) is an important
Intangible assets are assets that cannot be physically held, such as copyrights, brand names, trademarks, goodwill, and patents. There are two kinds of intangible assets, definite and indefinite. Definite assets have a useful life and would be amortized ever year to decrease the value, such as trademarks and patents. Indefinite do not have a definite life time and would last as long as the company stays in business. Definite assets need to be amortized based on their useful life by determining the pattern of use for the asset. For example, if a company uses an asset 40% the first year, 30% the next year, and 15% the next 2 years, then it would amortize the value following that pattern. If they do not know the pattern they would use the straight-line
Payback, Accounting Rate of Return (ARR), Net Present Value (NPV) and Internal Rate of Return (IRR) are very important in terms of calculating an investment appraisal. Each of it carries out a different kind of characteristic and suitable for everyone who interested in investment.
Within the next few years, the most important accounting issue that needs to be resolved is in regards to the use of fair value accounting. There is a great divide between historic and fair value accounting and there are many pro’s and con’s to each side, but to which method would be the best to fairly state the actual and true cost of something. The current issue with fair value is the valuation process of some items; most notably one would point out level three assets/liabilities. Levels one and two can be easily determined by looking to the market for guidance and there are identical and observable assets/liabilities to compare these to. Therefore, those items are valued immediately and correctly. But when you get to a level three asset/liability, it is up to the preparers “best judgment” to put a value on that item. This valuation cannot be found using observable similar inputs on the market since they can be unique and hard to compare to other assets/liabilities such as a building. At this point, the judgment of the preparer can be either over or under, and this amount could be ...
The main method used by businesses to classify assets is to split them into tangible assets, which have a separate existence from the business (examples of which would include buildings, land and machinery), and intangibles which do not. Some clear examples of intangibles include goodwill, patents, research and development expenditure and trademarks. Intangible assets are usually created within the organisation over a period of time, by the company itself, rather than acquired from an external source and are rarely sold off individually they can normally only be sold in conjunction with associated tangible assets.
Book Value- Book Value can be defined as the total worth of a company if its assets are liquidated and the liabilities are all paid out. Book value can also be considered the value of a particular asset on the company’s balance sheet after taking accumulated depreciation into account. The book value can be calculated by subtracting the company’s intangible assets and liabilities from its physical assets.
Following the trend of economy, it is important to investors to understand that strong economy creates strong stock market. To elaborate further, as stock prices are increased by current and future expectations of earnings, thus without a strong economy it would be difficult for the companies to increase and sustain their earnings (Kong 2013). The economy development is usually calculated using the gross domestic product of a countries. On the other hand, a change is the stock price can also cause a major impact to the consumers and investors directly. Hence, a loss in confidence by investors can cause a downturn in consumer spending in the long term, which will also affect the economy’s output (Aysen 2011). The graph below shows the relationship of stock market price (KLCI) and the GDP of Malaysia in 2009. Thus, it can be concluded that the economy and the stock market has a positive relationship.