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But what does PIBV means and how ‘can investors use this parameter to value their investments? In this article, we will try and simplify this concept. How is PIBV calculated? PIBV is a valuation ratio and is arved at by dividing the market price of a share with the respective company’s book value per share, Now, book value is equal to the ‘shareholder's equity (share capital plus reserves and surplus). Book value can also be arrived at by subtracting current liabilites and debt from total assets. For the banking and finance companies, book value is calculated as ‘share capital plus reserves minus miscellaneous assets not written off. This formula then takes care of PBV: Understanding the concept - Views on News from Equilymaster Become A Smarter Investor In. Just 5 Minutes Get our special report, Multibagger Stocks Guide (2017 Edition) Now! Enter E-Mail Address (__Send My Free Report] We will never sell or rent your email Please read our Jems the bank’s NPAs and gives a correct picture ‘SRP_BSE SENSEX FY08 Balance sh 3K Liabilities Re m Assats Rem Equity capital 2,860 Cash 69,500 Reserves & surplus 135,090 Other current assets 60,580 Current iabities 41,910 Fixed assets ar770 29K Investments 0 Deferredtax assets 1,190 179,860 179,860 If one were to take a look at Infosys’ consolidated balance sheet for FYO8, as Se 16 Mart? nat? mentioned above, book value will be arved at by adding Rs 2,860 m (equity capital) 3227261 0.10% land Rs 135,090 m (reserves and surplus), which equals to Rs. 137,950 m. sep 15,20770327 PM Conversely, when we deduct current liabilities from total assets, we shall arive at a similar figure. Now, by dividing this book value (Rs 137,950 m) by the issued equity ‘shares of the company (approx 572 m), we Would arive at the book value per share OTHER USEFUL LINKS figure, which is Rs 241.2. This willbe our denominator for calculating the P/BV for the Infosys stock, which currently stands at 6.6x. = Detaled Sector Research Reports 1 entitving Stocks: Dols And Don's PIB figures for companies in the services industries like software and FMCG are © Advanced Stock Screener high as compared to those of companies in the sectors like auto, enaincering, steel * 5¥- Analysis Of Companies ‘and banking. This is because companies from the sectors Ike software and FMCG = Compare Companies have low amount of tangible assets (fixed assets etc.) on their books and, as such, the PIBV may nol be a correct indicator of valuation. On the other hand, old economy y4aRKET STATS ‘sectors Ike auto and engineering have large balance sheets, Le., they have a large ‘amount of fixed assets and investments. As such, P/BV is a good indicator of measuring value of stocks from these sectors. Gainers Today M What does P/BV indicates? BSE30 " PIBV is a good metric to value stocks of companies in the capital-intensive industies 25 results ¥ like engineering, automobiles and banks, which have large amount of tangible assets — hitps:shwww.oquitymastor com/setaiLasp?date=5113/20048story=28iillo=PBV-Understanding-the-concept eitansizar7 PBV: Understanding the concept - Views on News from Equilymaster in their books (balance sheet), If a company is trading at @ PIBV of less than 1, this indicates any of both ofthe two- + Investors believe that 1@ company's assets are overvalued, or ‘+ The company is earning a poor return on is assets. A high PIBV indicates vice versa, ie., markets belleve the company's assets to be Undervalued or that the company is earning and is expected to eam in the future a high return on its assets. Book value also has a relationship with the ‘Return on Equity’ of a company. In fac, book value can also be termed as equity (equily capital plus reserves and surplus). As such, for a company that eas a high return on equity, investors would be ready to give the stock a high P/BV multiple. What does PIBV fall to indicate? + PIBV indicates the inherent value of a company and is a measure ofthe price that investors are ready to pay fora ‘i growth of the company. As such, since ‘companies in the services sectors like software and FMCG have a high growth ‘component attached to them, P/E and not P/BV isa right measure oftheir vations, Metre woranarenin) WES cu Re) PR BVP ‘a ae sos me mse 18 5H + PIBV should not be used for valuing companies with high amount of debts, This is because high debt marginalizes the value of a company’s assets and, ‘as such, P/BV can be misleading. We hope this article was able to throw some light on the concept of P/BV and its relevance from an investor's viewpoint. The ratio has its shortcomings that investors need to recognise. However, it offers an easy-to-use tool for identilying clearly under ‘oF aver valued companies, Atvetisemant Multibagger Stocks Guide (2017 Edition) In this report, we reveal four proven, strategies to picking multibagger stocks. Well over a million copies of this report have already been claimed over the years, Dont miss it for anything. ‘As soon as you sign up, You wll start receiving The 5 Minute WrapUp, 1 Freeforlife newsletter from Equtymaster hitps:shwww.oquitymastor.comietailasp?date=3/13/20048story=28ti -BV-Understanding-the-concept mmansizar7 PBV: Understanding the concept - Views on News from Equilymaster Equitymaster requests your view! Post a comment on "P/BV: Understanding the concept". Click here! 21 Responses to "P/BV: Understanding the concept” SIDDHANT RAGHORTE, Apr 2, 2017 P/E &P/B V ratio are the key indicators for analysis of Stock position. For the debt part whether secured loans and unsecured shown in B/S are really true and trustworthy or shall it defeat the true purpose while deriving the ook value. In real sense,things are manipulated and window-dressed properly for borrowing funds from banks. Ultimately.resulted in high ‘NPAs,whom to condemn for this jugglery. Like Srinivasa Feb 4, 2017 The article is simple and educating. But it does not explain how to use it for picking stocks for investment keeping in view other parameters. A high P/BV for companies is not always safe. Trump Bump and consequent fall of share prices and values of IT stocks is a case in point Equity master should educate investors how to pick good stocks keeping in view various parameters, with live examples, Like () Kirtikumar Wani 04125, 2016 Very interesting and educating Like (1) Sumit Agrawal Ape 16,2014 thanks for this post. it provide complete information and easy to understand. but why P/BV should not used for companies have low fixed assets?? please elaborate the point. 241) PSATYANARAYANA May 17,2013 Itis excellent explain to new market traders. Ithas given very useful information to select a cheap stock, which will be given good growth in future. Like (1) vasudevan ‘Ape 26,2013 Very educative indeed. It is like teaching alphabet( Here the basics of share) to a small tiny tot, Kudos keep it up Like (1) hitps:ihww.oquitymaster.com/dtaiLasp?date=0/12/20048story=28titlo=PBV-Understanding-the-concept antansizar7 PBV: Understanding the concept - Views on News from Equilymaster vasudevan ‘Apr 26,2013 Very educative indeed, Itis like teaching alphabet( Here the basics of share) to a small tiny tot Kudos keep it up Like (1) venkatraman ‘Aug 21, 2012 good that the interpretations of P/Eand P/BV values have been explained very well and where to use them Like (1) doshi ‘ne 13,2012 Very simple and easy to understand, Thanks Like () Shani Nov 12,2011 Very good explanation and easy to understand. Eventhough P/BV isnot the only criteria one should look for before picking a stock but a better understanding of this concept will help a person who is into value investing. Twould say that the most important parameters for analyzing a stock arc PIBY, Like (1) Net sales, ROIC and debt to net ratio, Next> Equitymaster requests your view! Post a comment on "P/BV: Understanding the concept". Click here! MORE VIEWS ON NEWS How to Ride Alongside India's Best Fund Managers (The 5 Minute Wrapup) Forty Indian investing gurus, as worthy of imitation as the legendary Peter Lynch, can help you get rch in the stock market Why You Need To Build A SIP-Worthy Mutual Fund Portfolio (Outside view) PersonalFN's exclusive report on SIP- worthy mutual funds can prove extremely useful. What is Chauffeur Knowledge Doing to Housing MOST POPULAR The Final Nail in the Demonetisation Coffin (Vivek Kus Diary) ‘The data from the RBI Annual Report confirms that the major objectives of demonetisation have all gone for a toss, Demonetisation was a dumb idea (The Honest Truth) “The BJP should stop playing politics and deliver economic development. 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