Book Value Vs Liquidation Value

Book value simply means = Total assets - Total liabilities/Number of outstanding equity shares in market. It indicates the residual left for equity shareholders after paying of firm's creditors. As a fundamental analyst i personally prefer liquidation value per share as it is an acid test of final value left for shareholders if the firm stops working the same day. Key points to remember while calculating assets and liabilities of any firm - True value of fixed assets, for example we depreciate land and building in accounting but in real practice land appreciates its value with the passage of time. Therefor for all such assets we have to consider this phenomenon. Real value of inventory. Liabilities company not obliged to return like unsecured loans and debts. Anything which is an abnormal income or expenses. This will give the true liquidation value of the present on the basis of which i can forecast the future liquidation value then divide the liquidation value with the number of outstanding shares in the market. Formula - Real value of assets - Real necessary liabilities/number of outstanding equity shares in the market. To make my analysis more effective for future i also calculate the diluted liquidity value per share of the firm by assuming that company has issues all its authorized equity shares. Formula - Real value of assets - Real necessary liabilities/number of outstanding equity shares in the market + number of equity shares company still eligible to issue. Diluted Liquidation value per share is an ultimate test of company's financial fundamentals and if it is more than the market price of share then that stock is a must buy and can show good growth in future. My weblinks - Linkedin - www.linkedin.com/in/mohit-pandey-b9254434 Blog - https://fanfin84.blogspot.com