Valuation of shares

Concept 2: Book value


Book value is basically an accounting measure. It can be computed by looking at the balance sheet of a company.

Book value is the net of what the company owns and owes recordically – Total of land, buildings, machinery etc… Reduced by the total of what it owes – liabilities like loans.

How to find book value?

The simple way to find book value is –

  • Book value = Equity share capital + Retained earnings

Both these figures are available in the company’s balance sheet. You can add the above said numbers to get the book value. The other option is to rely on financial websites where this information is available straight.


Concept 1: Intrinsic Value.

As said in my last post, there are 5 concepts to be discussed in detail. The first concept I will discuss is the notion of intrinsic value.

‘Intrinsic value’ is one term that’s on every website that talks about stock market investing. Let’s try to crack down what it’s all about.

Intrinsic value is basically finding answer to one question – at what price do YOU think that a stock is available at a bargain and why?

It is basically an estimate. There is no correct intrinsic value. Two investors can be given the exact same information and both of them may come out with a different value on a company. The intrinsic value of a stock may be very different from its market price.


5 Investment concepts

The whole purpose of valuation is to find out the approximate price at which you can buy a stock. And, if you do that, the return you deserve for taking that risk .

For this, there are some concepts that you should be aware of. They are –

  • Concept 1.

Intrinsic value – A notional value of the stock based on certain calculations. A price at which you feel the share is worth buying. Read More

  • Concept 2.

Book value – what a company is worth recordically. It’s computed from the balance sheet by adding up all the assets and deducting from it the total liabilities of the company.Read More


How to gather qualitative information?

There is a lot of information that you can gather to check the qualitative aspects of a particular stock. This includes a lot of information including-

  • Sectoral Performance

Is the company doing business in a Sunshine sector? For example in the 1990’s IT Sector was at its best and anyone who invested in those shares would have accumulated a lot of wealth by end of the decade.

  • Quality of the Products

Great companies have products and services that people want year after year because of their universal appeal or because the company keeps the products fresh with shifting consumer concerns.

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