Book value and liquidation value per share for common stock, Financial Management

Assignment Help:

Compare and contrast the book value and liquidation value per share for common stock. Is one method more reliable? Explain.

The Book Value of a firm's common stock is institute by subtracting the value of the firm's liabilities and preferred stock if any, as mentioned on the balance sheet, as of the value of its assets.  The result is the book value or else net worth of the company's common stock.  To get the book value per share of common stock divides the company's book value by the number of outstanding common stock shares.

The book value and liquidation value valuation methods are similar, excluding that the liquidation method uses the market values of the liabilities and assets not book values.  The market values of the assets are the amounts the assets would earn on the unlock market if they were sold (or liquidated).  The market values of the liabilities are the amounts of funds it would take to pay off the liabilities.

Since it is on the basis of market values, the liquidation value method is more dependable than the book value method.  But, liquidation value is a worst-case valuation assessment.  A company's common stock should be worth at least the amount generated per share at liquidation.

 

 


Related Discussions:- Book value and liquidation value per share for common stock

Finance: Scenario Analysis, Scenario analysis Your firm, Agrico Products, i...

Scenario analysis Your firm, Agrico Products, is considering a tractor that would have a cost of $35,000, would increase pretax operating cash flows before taking account of deprec

Explain the concept of working capital, Q. Explain the concept of working c...

Q. Explain the concept of working capital. Distinguish between variable and permanent working capital. What is the significance of such distinction in financing working capital req

Explain conversion and competitive effects of exchange rate, Define the con...

Define the conversion and competitive effects of exchange rate changes on the company's operating cash flow. Answer:  The competitive effect: Exchange rate modifications may in

Discuss how a firm can maintain adequate working capital, Question1 Analys...

Question1 Analyse the financial requirements of a FMCG company Question2 If you are an investor and are interested in finding out the value of an amount of Rs 10,000 to be re

Describes net operating income approach to capital structure, Q. Describes ...

Q. Describes Net Operating Income Approach to Capital Structure? NOI (Net Operating Income Approach):- This is another speculation of capital structure which is propounded by '

Gordon`s dividend capitalisation model , Considering the following informat...

Considering the following information, what is the price of the share as per Gordon’s Model? Details of the Company Net sales Rs.120 lakhs Net profit margin 12.5% Outstandi

Discuss the objectives of financial statements, Question: The Statement...

Question: The Statement of Principles for Financial Reporting sets out the principles that should underlie the preparation and presentation of general-purpose financial stateme

Charge for depreciation and amortization, Talbot Enterprises recently repor...

Talbot Enterprises recently reported an EBITDA of $8 million and net income of $2.4 million. It had $2.0 million of interest expense, and its corporate tax rate was 40%. What was i

Show factors influencing participation, Q. Show Factors influencing partici...

Q. Show Factors influencing participation? Factors influencing participation: several research studies have shown that the intensity of participation depends on four factors.

Credit spread risk, A credit spread refers to the difference in inter...

A credit spread refers to the difference in interest rate between a corporate bond and a comparable maturity government bond. Suppose interest rate on a five-year

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd