The price-to-book value ratio is also helpful to investors valuating a company. It compares a stock's per-share price (market value) to its book value (shareholders' equity). The price-to-book value ratio, expressed as a multiple (i.e. how many times a company's stock is trading per share compared to the company's book value per share), is an indication of how much shareholders are paying for the net assets of a company.
The book value of a company is the value of a company's assets expressed on the balance sheet. It is the difference between the balance sheet assets and balance sheet liabilities and is an estimation of the value if it were to be liquidated.
The price/book value ratio, often expressed simply as "price-to-book", provides investors a way to compare the market value, or what they are paying for each share, to a conservative measure of the value of the firm.
Formula:
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Components:
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The dollar amount in the numerator, $67.44, is the closing stock price for the fictitious Zinzibar Holdings as of December 30, 2017, as reported in the financial press or over the Internet in online quotes. In the denominator, the book value per share is calculated by dividing the reported shareholders' equity (balance sheet) by the number of common shares outstanding (balance sheet) to obtain the $18.90 book value per-share figure. By simply dividing, the equation gives us the price/book value ratio indicating that, as of Zinzibar Holdings' 2017 fiscal yearend, its stock was trading at 3.6-times the company's book value of $18.90 per share.
Variations:
A conservative alternative to using a company's reported shareholders' equity (book value) figure would be to deduct a company's intangible assets from its reported shareholders' equity to arrive at a tangible shareholders' equity (tangible book value) amount. For example, Zinzibar Holdings' FY 2017 balance sheet reports goodwill (in millions $) of $2,428.8 and net intangible assets of $756.6, which total $3,185.4. If we deduct these intangible assets from its shareholders' equity of $4,682.8 of the same date, Zinzibar Holdings is left with a significantly reduced tangible shareholders' equity of $1,497.4. Factoring this amount into our equation, the company has a book value per share of only $6.04, and the price/book value ratio then skyrockets to 11.2 times.
Warren Buffet's Life Advice Will Change Your Future (MUST WATCH)
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Warren Buffett reveals his investment strategy and mastering the market
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Portfolio Management
Portfolio management consists of three main elements: investing time horizon, diversification of investments, and risk tolerance.
What Is Asset Management?
Asset management is the direction of all or part of a client's portfolio by a financial services institution, usually an investment bank, or an individual. Institutions offer investment services along with a wide range of traditional and alternative product offerings that might not be available to the average investor.
KEY TAKEAWAYS
- Asset management refers to the management of investments on behalf of others.
- The goal of asset management is to grow a client's portfolio over time while mitigating risk.
- Asset management is a service offered by financial institutions catering to high net-worth individuals, government entities, corporations and financial intermediaries.
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Warren Buffett Investment Strategy
The main investment strategies from Warren Buffett can be focused on the following eight investment strategyies.
1. Stick With Long Term Value Investing Strategies
Don’t let fear and greed change your investing criteria and values. Avoid being overwhelmed by outside forces that affect your emotions. Never sell into panic.
2. Invest in What You Understand
Buffet only invests in companies he understands and believes have stable or predictable products for the next 10 – 15 years. This is why he has typically avoided technology companies.
3. Invest Like You Are Buying the Entire Company
Treat investing in a stock as though you are buying the entire company. I always take a hard look at enterprise value because this is the total price of a company. In other words, it is the price you would be paying for the company if you could buy the whole company at current prices.
4. Companies with Competitive Advantages
Companies with pricing power, strategic assets, powerful brands, or other competitive advantages have the ability to outperform in good and challenging times. A long term investing strategy requires investing in companies that can weather both good and bad economic times.
5. Find Quality Companies
Buffet believes in quality investing. He would rather pay a fair price for a great company than a low price for a mediocre company.
6. Keep Cash On Hand
Investment opportunities become available through broad market corrections or individual stocks that become bargains. These are not predictable events; so cash on hand is an important concept in value investing.
7. Require a Margin of Safety
Purchasing stocks with a margin of safety below their intrinsic value reduces risk and provides an allowance for unforeseen negative events.
8. Compounding and Patience
Buffet believes in long term value investing because he understands the power of exponential growth. Companies with sustainable profits can pay and grow their dividends. There are few more powerful long term investing strategies than dividend growth compounding.
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Warren Buffett's Advice for Young People Who Want to Be Rich
https://www.youtube.com/watch?v=N0eVxWevvN0&ab_channel=NewMoney
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