Forum Archive Index - June 2003

["billbray" <billbray@xtra.co.nz>]

The term 'book value' has only one understood meaning and that is the value
of itemised assets of an entity depreciated by specifically allowed
percentages as determined by IRD.  Forget the rest of the explanation.
BB
----- Original Message -----
From: "Gavin Treadgold" <gav@rediguana.co.nz>
To: <sharechat@sharechat.co.nz>
Sent: Thursday, June 19, 2003 6:30 PM
Subject: RE: [sharechat] book value


> Hi Allan.
>
> I agree, but as an investor, I am not concerned about the accounting book
> value (asset register/one book) of a desk here, building there, and so on.
I
> am however concerned about the overall value of the assets and liabilities
> (all the books). If everything turns bad, how much is it worth.
>
> If I purchase a company, I also take on the debts of that company. Hence I
> cannot just look at the assets, but also the liabilities.
>
> Of course, even this form of valuation has its downside. The liquidation
> value of a company is solely the cost of the individual components. It
does
> not place any value on combinations of these components.
>
> Perhaps another way of comparing my 'liquidation value' and the market
value
> is this.
>
> Liquidation value - cash received from the sale of individual components
of
> the business, less outstanding debts. This form of value does not account
> for synergy created by combining these components. This value is however
at
> the objective end of the valuation spectrum.
>
> Market value - this not only values the individual assets that make up a
> business, but also values the combinations of these assets. However
because
> combinations are somewhat intangible, and assets can be regrouped and
> reorganised to do different things, this value is very subjective and
> fickle - as represented by day-to-day flucuations on the share market.
This
> value is much more subjective, as everyone has a different view of the
value
> of the components.
>
> A simple example. You have a calculator, pad, pencil and an accountant.
> Liquidation value is how much so can sell them for individually, less any
> outstanding debts on your business. Market value would be the liquidation
> value, plus a premium for the fact that an accountant can use a pad,
pencil
> and calculator to generate income. The subjectivity comes in when you try
> and value this combination of components, and estimate future earnings
from
> this combination.
>
> Coming back to your point about companies selling for less than 'book
value'
> in NZ, that makes perfect sense. Given that most companies will have some
> form of debt, it would be foolish to purchase a company based solely on
the
> value of the companies assets or its 'book value'. One must also take into
> account the debt which is not represented in the 'book value'.
>
> John's email has just come in and he has laid out the terminology nicely.
I
> think this thread highlights the ambiguity that lies in the term 'books'
and
> its use, and that more specific terms (as mentioned by John) need to be
> used. I am now at fault for not having used the correct terms! :)
>
> My assumption in the original email was that books meant Net Realisable
> Value as this was an investing list. Had this been an accounting list then
I
> would have taken book value to be the asset register.
>
> Cheers Gav
>
>
> --------------------------------------------------------------------------
--
> To remove yourself from this list, please use the form at
> http://www.sharechat.co.nz/chat/forum/
>
>



----------------------------------------------------------------------------
To remove yourself from this list, please use the form at
http://www.sharechat.co.nz/chat/forum/