Chapter 6 · Fundamental analysis
Book value and return on equity
What the company owns net of debts, and how well it uses it.
Book value per share is assets minus liabilities, divided by shares — roughly what would be left per share if the company were wound up and everything realised at its stated value.
Price to book compares the market price to that figure. Below one means the market values the company at less than its stated net assets, which is either an opportunity or a warning that the assets are not worth what the books say.
Return on equity is profit divided by shareholders' equity. It answers the question that matters most: how well does this company use the money shareholders have put in?
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