10
Valuation of companies
- Book value vs market value
- Valuation techniques
- Summary
So far we have talked about how to construct, interpret and analyse company accounts. Someone like you, Tom, who is thinking of buying shares in a company is really interested in the value of those shares (which is what most people mean when they talk about the value of a ‘company’).
I will start by explaining why book value and market value of shares are usually different and then I will describe briefly four ratios that are used a lot when valuing companies.
Book value vs market value
Book value
Book value is simply the value that an item has on the balance sheet (i.e. ‘in the books’). We know that the book value of the shares of a company is the value of the ...
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