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Book value of shares plays an important role in every company business. It can be defined as
a figure which is used to represent the minimum value of a company’s equity. The book
value of shares can be computed by taking the stockholders equity minus preferred stock
divided by the average number of shares outstanding. As a result, the usage of book value of
shares makes it so much easier for a company to know how well their stock is being valued in
order to determine whether it is overvalued or undervalued in the market. On top of that,
book value of shares also considers to be important in financial statement analysis due to the
fact that it represents an accurate image of a company’s growth such as every investor will
definitely use it to measure the real value of a company stocks where it can be seen as an
example like what will be the value of total assets the shareholders received if the company
were to be in liquidation. Last but not least, companies like banking institutions and
investment also rely the most on book value of shares as they use it to measure the stock
potential value for future growth.
Question 4 (2)
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