New to investing

[Zel99]

Hey guys!
I recently saved up a bit and got into investing and have been reading up on Security Analysis by Graham and Dodd. So far what I've taken away from it (although pretty basic) is to start off looking at Book Value per Share. However, after some googling there seem to be some varying formulas and I was wondering if anybody could help out and confirm?

The first formula was:

Stockholder's Equity (Net Assets) - Preferred Stock (Don't know how to calc this) all over Average Shares Outstanding (Im assuming this is just shares outstanding/shares listed)

The second formula was:

Net Assets/Shares outstanding

I used the latest app3b from JIN as an example and got about 0.99 using the second formula.

Could anyone please confirm if this is wrong or right?

Thanks!

 

[barney]

Hey guys!
The second formula was:

Net Assets/Shares outstanding I used the latest app3b from JIN as an example and got about 0.99 using the second formula.

Welcome to ASF @Zel99

The fundamental mathematics of Stocks is not my strong suit but Net Assets/Shares should get you what you are looking for if you have up to date data.

Checked Commsec. Its old data, but your calc on JIN looks pretty close to the mark given the June 2019 figures.

 

[Value Collector]

Hey guys!
I recently saved up a bit and got into investing and have been reading up on Security Analysis by Graham and Dodd. So far what I've taken away from it (although pretty basic) is to start off looking at Book Value per Share. However, after some googling there seem to be some varying formulas and I was wondering if anybody could help out and confirm?

The first formula was:

Stockholder's Equity (Net Assets) - Preferred Stock (Don't know how to calc this) all over Average Shares Outstanding (Im assuming this is just shares outstanding/shares listed)

The second formula was:

Net Assets/Shares outstanding

I used the latest app3b from JIN as an example and got about 0.99 using the second formula.

Could anyone please confirm if this is wrong or right?

Thanks!

Hi Zel99,

I own a copy of security analysis, it's great its full of stock market history and real world examples, and you learn a lot about the capital structure of companies etc.

But I wouldn't get to wrapped around the axles with formula, etc. If it was all about formulas then the best investors would be computers.

It's hard for me to explain in text, but all investing really comes down to is

1, finding good businesses to invest in eg. where the returns on the capital invested inside the company are good, and those earnings are either steadily paid out to you, or are retained and invested inside the company in ways that are intelligent and increase earnings.

2, Based on the above, not over pay for the shares you buy based on the earning power the company is likely to have over time.

In some companies looking at book value and comparing it to earnings can give you an idea about how profitable the company is based on the amount of capital they have tied up, but it is not the be all and end all, its a starting point.

You really have to become a bit of businessman and understand the basic economics of the companies you are analysing, a part of that is understanding their capital structure thats where the analysis of balance sheets etc comes in, but that is only part of it, you have to understand the basics about their products and services, their competitors, their customers basically everything you would be thinking about if you were buying the whole company and holding it for your life time.

 

[galumay]

In Australia you will often see book value described as shareholder's equity.


Aside from that Value Collector has very neatly captured how I try to approach investing.

 

[Knobby22]

And to state the obvious, you are looking to the future not the past, how strong is the moat (protection from competition), can the company keep growing, can technology disrupt it, what can go right, what can go wrong?

 

[Zel99]

Thanks guys! Will take note

 

[aus_trader]

Zel welcome to the Forum.

If I could invest in companies based on just a simple formula or just 1 calculation like book value, life will be so simple, it'll be a walk in the park

Unfortunately it's not the case as all the above ASF members have pointed out. You have to look at it from other angles to get a better picture of the business, not just a ratio.

It is useful to use book value as a starting point, but then the analysis begins...

 

[Mueller21QQQ]

hi
I'm new to investment too