book value

Warren Buffett Accounting Book: Reading Financial Statements for Value Investing (Warren Buffett's 3 Favorite Books)
by Stig Brodersen and Preston Pysh
Published 30 Apr 2014

Let’s get down to business and use the calculator with an example! 1) Insert book values and find the average book value growth rate: Current Book Value ($): Old Book Value (S): # of Years between Book Values: Average Book Value change (%): As you may recall, the change in book value over time provides clues into the change in intrinsic value. That is what we are trying to determine in this step. Our starting point is what we call “current book value,” and in this generic example I have used $30. We would then go back ten years and look for the “old book value,” which in this example is $10. Our calculator generates the average annual output, which is 11.6 %.

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The financial inputs required for using the calculator are all disclosed to the public in a company’s annual report and should be easy to find on free Internet sites such as MSN Money, Yahoo Finance, Morningstar, or the company’s own website. Overview of the seven steps for using the calculator Insert book values and find the average book value growth rate Insert cash taken out of the business (or dividend) Insert the current book value Input the average percent change in book value per year (from step 1) Determine the number of years Determine the discount rate Push the calculate button Assumptions Current book value: $30 Old book value: $10 Number of years between the two book value figures: 10 Yearly dividend: $1 Discount rate: 2.5% Now, enough talk.

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If they are not, you can’t expect the book value to grow like it did in the past. Your calculations will be inaccurate and misleading. If current and forecasted earnings are consistent with past earnings, they should provide a reasonable expectation of future book value growth; for example, if the company’s current book value is $10 a share, and we expect the book value growth rate to be 7% based on historical trends, then we would use the simple time-value-of-money formula to estimate the future book value ten years from now: FBV = Future book value = ? PBV = Present book value = $10 g = Expected growth rate of book value = .07 or 7% n = Number of years into the future = 10 FBV = PBV (1+ g)n FBV = $10 (1.07) 10 FBV = $19.67 In an effort to simplify our bond market price formula for stocks, we’ll rename our variables as follows: Annual coupon = The average annual dividend expected over the next n years Therefore C = D Par value = The expected future book value Therefore M = FBV = PBV (1+ g)n Now that we have adjusted the variables, let’s substitute them into the bond equation to arrive at our intrinsic value formula.

Deep Value
by Tobias E. Carlisle
Published 19 Aug 2014

We always emphasize that different price-to-value ratios are just different ways to scale a stock’s price with a fundamental, to extract the information in the cross-section of stock prices about expected returns. One fundamental (book value, earnings, or cashflow) is pretty much as good as another for this job, and the average return spreads produced by different ratios are similar to and, in statistical terms, indistinguishable from one another. We like [price-to-book value] because the book value in the numerator is more stable over time than earnings or cashflow, which is important for keeping turnover down in a value portfolio. Nevertheless, there are problems in all accounting variables and book value is no exception, so supplementing [price-to-book value] with other ratios can in principal improve the information about 64 DEEP VALUE expected returns.

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Clayman attributes the difference in results to the fact that the later period was more favorable to glamour stocks than to value stocks, which is unusual. Examining the universe divided into deciles on the basis of priceto-book value alone, the more expensive, high price-to-book value decile generated an average return of 14.3 percent, outperforming the cheaper, low price-to-book value decile, which generated an average return of 12.6 percent annually. She also notes that, “. . . even though the average price-to-book ratio of the good companies fell between the two periods, the faster growth of equity (book value) meant that price performance was not impaired,” which, too, is unusual.57 It’s worth noting that the outperformance occurred during a period where glamour outperformed value, which does occur periodically, but not consistently or over the long term, and also that the outperformance relied on book value growing faster than the rate at which the price-to-book value ratio fell, which is an unusual and risky assumption.

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She also notes that, “. . . even though the average price-to-book ratio of the good companies fell between the two periods, the faster growth of equity (book value) meant that price performance was not impaired,” which, too, is unusual.57 It’s worth noting that the outperformance occurred during a period where glamour outperformed value, which does occur periodically, but not consistently or over the long term, and also that the outperformance relied on book value growing faster than the rate at which the price-to-book value ratio fell, which is an unusual and risky assumption. The more conventional position would be to assume value would continue to outperform glamour, and book value would not grow faster than the priceto-book value ratio falls. The first paper fit into existing microeconomic theory, where the second paper did not, suggesting that the first paper was more likely describing the phenomenon correctly and the second was an outlier. 137 Catch a Falling Knife $1,610,000 S&P 500 TR Unexcellent Portfolios Excellent Portfolios $1,410,000 $1,210,000 $1,010,000 $810,000 $610,000 $410,000 $210,000 2012 2010 2008 2006 2004 2002 2000 1998 1996 1994 1992 1990 1988 1986 1984 1982 1980 1978 1976 1974 $10,000 FIGURE 7.1â•… Comparison of Unexcellent and Excellent Stock Portfolios (1972 to 2013) Source: Stifel Financial Corp. and Eyquem Investment Management LLC.

Value Investing: From Graham to Buffett and Beyond
by Bruce C. N. Greenwald , Judd Kahn , Paul D. Sonkin and Michael van Biema
Published 26 Jan 2004

The second valuation based on assets is to compare the price of the company's shares to the book value per share. The book value is the balance sheet entry for shareholder equity divided by the number of shares. Since equity by definition equals all the assets minus all the liabilities, book value can include the value of intangible assets such as goodwill and a number of other assets that may be worth considerably less than the balance sheet suggests. Buying stocks at a substantial discount to book value has been, as we have said, a successful investment strategy. No adjustment is made to the figures on the financial statement, which makes the strategy appropriate for investors who don't want to do a lot of work.

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The supervisory bodies who were responsible for seeing that the conversions went smoothly also had an interest in making sure that all the newly offered shares would sell, so they also opted for a low price. As a result, a savings and loan with a book value of $50 per share could be bought at $25 or $30. With new equity from the sale, the thrift was now overcapitalized. The conservative managers were not interested in making risky loans. As a result, not long after they went public, many thrifts started to buy back their shares. Because they were still selling at below book value, each share the bank retired increased the book value of the shares still outstanding. This was pure financial engineering; the book value rose not because of retained earnings but simply through the repurchase of stock at a discount.

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No adjustment is made to the figures on the financial statement, which makes the strategy appropriate for investors who don't want to do a lot of work. Again, few successful businesses will be available for sale at book value, and even fewer at a discount sufficient to provide the margin of safety that the value investor seeks. Just to be certain, Table 7.2 presents the book value and market value figures for Intel over five-year intervals starting in 1975. A graph of the market to book ratio over the entire period, as shown in Figure 7.2, makes the relationship more apparent. For the years between 1980 and 1995, Intel traded at between two and four times the book value of its equity. These are all end-of-year numbers. During each year, Intel stock prices hit highs and lows that differed, sometimes significantly, from the price at year-end.

Quantitative Value: A Practitioner's Guide to Automating Intelligent Investment and Eliminating Behavioral Errors
by Wesley R. Gray and Tobias E. Carlisle
Published 29 Nov 2012

They use the following inputs: NIMTA = weighted average (quarter's net income / MTA) MTA = market value of total assets = book value of liabilities + market cap TLMTA = total liabilities / MTA CASHMTA = cash and equivalents/ / MTA EXRET = weighted average (log(1 + stock's return) − log(1 + S&P 500 return) SIGMA = annualized stock's standard deviation over the previous 3 months RSIZE = log(stock market cap / S&P 500 total market value) MB = MTA / adjusted book value, where adjusted book value = book value + .1× (market cap-book value)PRICE = log(recent stock price), capped at $15, so a stock with a stock price of $20, would be given a value of log(15) instead of log(20) The authors use a statistical technique called “logistic regression,” sometimes called a “logit model.”

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Identify Stocks at High Risk of Financial Distress 2.1 Probability of Financial Distress (PFD) Calculate PFA variables: NIMTAAVG = weighted average (quarter's net income/MTA) MTA = market value of total assets = book value of liabilities + market cap TLMTA = total liabilities / MTA CASHMTA = cash & equivalents / MTA EXRETAVG = weighted average(log(1 + stock's return) − log(1 + S&P 500 TR return) SIGMA = annualized stock's standard deviation over the previous 3 months (daily) RSIZE = log (stock market cap / S&P 500 TR total market value) MB = MTA / adjusted book value Adjusted book value = book value +.1 × (market cap-book value) PRICE = log (recent stock price), capped at $15, so a stock with a stock price of $20, would be given a value of log(15) instead of log(20).

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He chose total assets because gross profitability is independent of the capital structure adopted by management (interest payments and dividends are accounted for further down the income statement). If the numerator is independent of the capital structure, it makes sense that the denominator should also be independent of the capital structure. Book value is not appropriate here because it's affected by the stock's capital structure (book value equals assets minus liabilities. If we hold assets constant, and increase the liabilities, we reduce book value). Total assets tells us the value of all the assets owned by the firm, and it is not affected by the manner in which they are financed. For this reason, it fits logically with gross profitability.

Corporate Finance: Theory and Practice
by Pierre Vernimmen , Pascal Quiry , Maurizio Dallocchio , Yann le Fur and Antonio Salvi
Published 16 Oct 2017

(d) Price to book ratio (PBR) The PBR (price to book ratio) measures the ratio between market value and book value: The PBR can be calculated either on a per share basis or for an entire company. Either way, the result is the same. It may seem surprising to compare book value to market value, which, as we have seen, results from a company’s future cash flow. Even in the event of liquidation, equity value can be below book value (due, for example, to restructuring costs, accounting issues, etc.). There is no direct link between book value and market value. However, there is an economic link between book value and market value, as long as book value correctly reflects the market value of assets and liabilities.

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The value created is thus equal to the difference between the capital employed and its book value. Book value is the amount of funds invested in the company’s operations. Creation of value = enterprise value − book value of capital employed. The creation of value reflects investors’ expectations. Typically, this means that, over a certain period, the company will enjoy a rent with a present value allowing its capital employed to be worth more than its book value! The same principle applies to choosing a source of financing for allocating resources. To do so, one must disregard the book value and determine instead the value of the financial security issued and deduct the required rate of return.

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However, it should be assessed on the basis of consolidated net attributable profit – the only meaningful figure, as in most cases the parent company is merely a holding company. ArcelorMittal’s payout ratio is 0%. 6. Equity value (book value or net asset value) per share Equity value (book value or net asset value) per share is the accounting estimate of the value of a share. While book value may appear to be directly comparable to equity value, it is determined on an entirely different basis – it is the result of strategies undertaken up to the date of the analysis and corresponds to the amount invested by the shareholders in the company (i.e. new shares issued and retained earnings). Book value may or may not be restated. This is generally done only for financial institutions and holding companies. 7.

The End of Accounting and the Path Forward for Investors and Managers (Wiley Finance)
by Feng Gu
Published 26 Jun 2016

It’s clear from the figures that the two patterns are similar: relative stability from the 1950s to the early 1980s, at a range of 80 to Adjusted R 2 of regression of corporate market value on reported earnings, 1950–2013 100% Percentage R 2 90% 80% 70% 60% 50% 40% 0% 1950 55 60 65 70 75 80 85 Year 90 95 2000 05 FIGURE 3.2 Share of Corporate Market Value Attributed to Earnings 10 2013 35 The Widening Chasm between Financial Information and Stock Prices Adjusted R 2 from the regression of corporate market value on reported book value, 1950–2013 100% Percentage R 2 90% 80% 70% 60% 50% 40% 0% 1950 55 60 65 70 75 80 85 90 95 2000 05 10 2013 Year FIGURE 3.3 Share of Corporate Market Value Attributed to Book Value 90 percent for earnings and 70 to 80 percent for book values, and a quick deterioration thereafter. Thus, the causes affecting the deterioration in the relevance of financial information (to be discussed in the concluding section) similarly affect both earnings and book values. Come to think of it, this is not totally surprising: By the structure of accounting procedures, what affects the income statement also affects the balance sheet, and vice versa.

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The search for additional cholesterol determinants, like food intake or parents’ cholesterol level, should go on. Now you are a statistical maven and appreciate our empirical finding: The role that earnings and book values—the key financial indicators—play in securities valuation dropped by almost 50 percent during the past half century. WHO’S THE CULPRIT—EARNINGS OR BOOK VALUES? Figure 3.1 reflects the joint relevance-loss of earnings and book values. Since accounting standard setters sometimes change their emphasis from the balance sheet to the income statement (focusing on income measurement as the primary objective of accounting) and vice versa (emphasizing the valuation of assets and liabilities over earnings), it’s instructive to examine separately the change over time in the relevance of earnings, the all-important “bottom line” of the income statement, and that of the book value, reflecting the balance sheet information concerning the company’s assets and liabilities.

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APPENDIX 3.1 We obtained the yearly adjusted R2 s shown in Figure 3.1 from the annual cross-sectional regressions of sample firms’ market value (MV) on their recently reported net income (NI), book value of equity (BV), and the number of shares outstanding (NSH).9 The regression model is as follows: MVit = a1t + a2t NIit + a3t BVit + a4t NSHit + eit , where i and t are firm and year subscripts, respectively. To ensure that market value reflects all the recent information on earnings and book value, we use market value as of three months after the firm’s fiscal year-end to which earnings and book value pertain.10 Similarly, the yearly adjusted R2 s shown in Figures 3.2 and 3.3 are obtained from the annual regressions of sample firms’ market value on their accounting earnings (book value) and the number of shares outstanding.

The Investopedia Guide to Wall Speak: The Terms You Need to Know to Talk Like Cramer, Think Like Soros, and Buy Like Buffett
by Jack (edited By) Guinan
Published 27 Jul 2009

Related Terms: • Discounted Cash Flow—DCF • Net Present Value—NPV • Time Value of Money • Internal Rate of Return—IRR • Present Value—PV The Investopedia Guide to Wall Speak 229 Price to Tangible Book Value (PTBV) What Does Price to Tangible Book Value (PTBV) Mean? A valuation ratio that expresses the price of a security compared with its hard, or tangible, book value as reported in the company’s balance sheet. The tangible book value number is equal to the company’s total book value minus the value of any intangible assets. Intangible assets are usually assets such as patents, Share Price intellectual property, and goodwill. PTBV = Tangible Book Value per Share The ratio is calculated as shown here: Investopedia explains Price to Tangible Book Value (PTBV) In theory, a stock’s tangible book value per share represents the amount of money an investor would receive for each share if the company went out of business and liquidated all of its assets at book value.

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The Investopedia Guide to Wall Speak 27 Related Terms: • Credit Rating • Interest Rate • Junk Bond • High-Yield Bond • Investment Grade Book Value What Does Book Value Mean? (1) The value at which an asset is carried on a balance sheet; in other words, the cost of an asset minus accumulated depreciation. (2) The net asset value of a company, calculated as total assets minus intangible assets (patents, goodwill) and liabilities. (3) The initial outlay for an investment. This number may be net or gross of expenses such as trading costs, sales taxes, and service charges. In the United Kingdom book value is called net asset value. Investopedia explains Book Value Book value is the accounting value of a firm.

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PTBV = Tangible Book Value per Share The ratio is calculated as shown here: Investopedia explains Price to Tangible Book Value (PTBV) In theory, a stock’s tangible book value per share represents the amount of money an investor would receive for each share if the company went out of business and liquidated all of its assets at book value. As a rule of thumb, stocks that trade at higher price to tangible book value ratios have the potential to leave investors with greater share price losses compared with those which trade at lower ratios, since the tangible book value per share can be viewed as about the lowest price a stock realistically could be expected to trade at. Related Terms: • Book Value • Net Tangible Assets • Price-to-Book Ratio—P/B Ratio • Intangible Asset • Tangible Asset Price-Weighted Index What Does Price-Weighted Index Mean?

The Intelligent Investor (Collins Business Essentials)
by Benjamin Graham and Jason Zweig
Published 1 Jan 1949

If, as many tests show, the earnings multiplier tends to increase with profitability—i.e., as the rate of return on book value increases—then the arithmetical consequence of this feature is that value tends to increase directly as the square of the earnings, but inversely the book value. Thus in an important and very real sense tangible assets have become a drag on average market value rather than a source thereof. Take a far from extreme illustration. If Company A earns $4 a share on a $20 book value, and Company B also $4 a share on $100 book value, Company A is almost certain to sell at a higher multiplier, and hence at higher price than Company B—say $60 for Company A shares and $35 for Company B shares.

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The reason is that the successful enterprises in which he is likely to concentrate his holdings sell almost constantly at prices well above their net asset value (or book value, or “balance-sheet value”). In paying these market premiums the investor gives precious hostages to fortune, for he must depend on the stock market itself to validate his commitments.† This is a factor of prime importance in present-day investing, and it has received less attention than it deserves. The whole structure of stock-market quotations contains a built-in contradiction. The better a company’s record and prospects, the less relationship the price of its shares will have to their book value. But the greater the premium above book value, the less certain the basis of determining its intrinsic value—i.e., the more this “value” will depend on the changing moods and measurements of the stock market.

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Graham recommends a “ratio of price to assets” (or price-to-book-value ratio) of no more than 1.5. In recent years, an increasing proportion of the value of companies has come from intangible assets like franchises, brand names, and patents and trademarks. Since these factors (along with goodwill from acquisitions) are excluded from the standard definition of book value, most companies today are priced at higher price-to-book multiples than in Graham’s day. According to Morgan Stanley, 123 of the companies in the S & P 500 (or one in four) are priced below 1.5 times book value. All told, 273 companies (or 55% of the index) have price-to-book ratios of less than 2.5.

Valuation: Measuring and Managing the Value of Companies
by Tim Koller , McKinsey , Company Inc. , Marc Goedhart , David Wessels , Barbara Schwimmer and Franziska Manoury
Published 16 Aug 2015

Capital Structure Exhibit 24.28 presents Heineken’s year-end 2013 capital structure in book values and market values. The book values are shown both excluding and including any related deferred-tax assets and liabilities. These are presented for reference only, as we used market values in estimating Heineken’s target capital structure. We estimated market values for the capital structure components as follows: r Short-term debt: Short-term debt matures within one year, so in most cases, book value approximates market value. EXHIBIT 24.28 Heineken: Capital Structure % Book value, € million Book value, net of DTAs/DTLs, € million % of total book value, net of DTAs/DTLs Short-term debt 1 Long-term debt Postretirement benefit liabilities, net of assets Other nonoperating provisions Excess cash Total debt 2,561 9,853 1,202 538 (906) 13,248 2,561 9,852 887 437 (906) 12,831 8.8 33.7 3.0 1.5 (3.1) 43.9 2,561 9,853 900 404 (906) 12,812 5.8 22.2 2.0 0.9 (2.0) 28.8 Shareholders’ equity Noncontrolling interest Total equity 15,476 954 16,430 15,476 954 16,430 52.9 3.3 56.1 28,226 3,372 31,598 63.6 7.6 71.2 Total capitalization 29,678 29,261 100.0 44,410 100.0 1 Including interest payable.

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To determine the market value of the bond, multiply 104.46 percent by the bond’s book value of $500 million (found in the UPS annual report), which equals $522.30 million. Since a bond’s price depends on its coupon rate versus its yield, not every UPS bond trades at the same price. For instance, a UPS bond maturing in 2038 recently closed at 121.96 percent of par over the same time period. Consequently, value each debt separately. If an observable market value is not readily available, value debt securities at book value (referred to as carrying value), or use discounted cash flow. In most cases, the book value reported on the balance sheet reasonably approximates the current market value.

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VALUING HYBRID SECURITIES AND NONCONTROLLING INTERESTS 331 Engine (TRACE) system.17 In December 2014, Intel’s traditional debt traded close to its book value. In contrast, the company’s convertible debt traded at a significant premium. For instance, the convertible debt due in 2035 traded at $2,117 million in December 2014 versus $946 million in book value. This difference between book and market values occurred for two reasons. First, when bonds can be settled in cash, a 2008 accounting rule requires that a portion of the bond be allocated to equity.18 Since the book value of equity is not used in DCF valuation, this can lead to a significant underestimation of value.

The Bankers' New Clothes: What's Wrong With Banking and What to Do About It
by Anat Admati and Martin Hellwig
Published 15 Feb 2013

This figure is significantly lower than the $184 billion in shareholder equity that JPMorgan Chase reported on its balance sheet, the so-called book value of its equity. If we use the market value figure of $126 billion instead of the book value of $184 billion for the bank’s equity, JPMorgan’s ability to absorb future losses would seem even weaker and its equity ratios even less than the 8 percent under GAAP and 4.5 percent under IFRS calculated on the basis of book values.20 What do we make of the discrepancy between the book value and the market value of JPMorgan’s equity? The book value is based on the balance sheet, which is prepared and made public by the bank; it is equal to the difference between the value of the bank’s assets and the value of its debts as assessed by the bank under the prevailing accounting rules.

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The fact that the market value is lower than the book value suggests that investors believe the book value is overly optimistic.21 This discrepancy between book values and market values is of immediate practical importance if the bank wants to raise new equity by selling shares in the market. The price at which this can be done depends on the value that stock market investors place on new shares, not on what the bank puts in its books as a book “value.” For some banks, the discrepancy between the stock market valuation of their equity and the book value of this equity reported on their balance sheets has been even greater than it is in JPMorgan’s case.

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The reported conversation between Merton Miller and the banker does not actually mention rates of return. The banker argues that equity is expensive because the banks’ stock prices are only 50 percent of their book value (the value reported on the banks’ balance sheets). Miller’s response indicates that he considers the banker’s reference to book values quite flawed. Using book values as a guide for making investment decisions is indeed another article of the bankers’ new clothes. Book values usually reflect historical valuations that are no longer relevant. Investment decisions must be made in light of current valuations. The fallacies discussed in this chapter are less obvious than the fallacy of confusing equity with reserves, but they are no less important.

Security Analysis
by Benjamin Graham and David Dodd
Published 1 Jan 1962

So we are back to the question of what will qualify as an investment. There is a well-traveled myth that Graham and Dodd exclusively relied on a company’s book value to determine a safe threshold. While intrinsic value measures the economic potential—what an owner might hope to get out of an asset—book value is an arithmetic computation of what has been invested into it.4 But book value alone cannot be determinative. If you invested an equal sum in, say, two auto companies, one run by Toyota and the other by General Motors, the book values would be equal, but their intrinsic or economic values would be very different. Graham and Dodd did not fall into this error; they stated plainly that, in terms of forecasting the course of stock prices, book value was “almost worthless as a practical matter.”

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In dealing with the first of these functions of the balance sheet, we shall begin by presenting certain definitions. The book value of a stock is the value of the assets applicable thereto as shown in the balance sheet. It is customary to restrict this value to the tangible assets, i.e., to eliminate from the calculation such items as good-will, trade names, patents, franchises, leaseholds. The book value is also referred to as the “asset value,” and sometimes as the “tangible-asset value,” to make clear that intangibles are not included. In the case of common stocks, it is also frequently termed the “equity.” Computation of Book Value. The book value per share of a common stock is found by adding up all the tangible assets, subtracting all liabilities and stock issues ahead of the common and then dividing by the number of shares.

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(It later transpired that a substantial part of the reserve was needed to absorb a write-off of plant abandoned owing to obsolescence.) The book value of the Second Preferred stock is readily computed from the foregoing, as follows: In computing the book value of the common it would be an obvious error to deduct the Second Preferred at its nonrepresentative par value of $1. The “effective par” should be taken at not less than $100 per share, in view of the $7 dividend. Hence there are no assets available for the common stock, and its book value is nil. Current-asset Value and Cash-asset Value. In addition to the well-known concept of book value, we wish to suggest two others of similar character, viz., current-asset value and cash-asset value.

The Essays of Warren Buffett: Lessons for Corporate America
by Warren E. Buffett and Lawrence A. Cunningham
Published 2 Jan 1997

Inadequate though they are in telling the story, we give you Berkshire's book-value figures because they today serve as a rough, albeit significantly understated, tracking measure for Berkshire's intrinsic value. In other words, the percentage change in book value in any given year is likely to be reasonably close to that year's change in intrinsic value. You can gain some insight into the differences between book value and intrinsic value by looking at one form of investment, a college education. Think of the education's cost as its "book value." If this cost is to be accurate, it should include the earnings that were foregone by the student because he chose college rather than a job.

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Buffett has applied the traditional principles as chief executive officer of Berkshire Hathaway, a company with roots in a group of textile operations begun in the early 1800s. Buffett took the helm of Berkshire in 1964, when its book value per share was $19.46 and its intrinsic value per share far lower. Today, its book value per share is around $20,000 and its intrinsic value far higher. The 5 6 CARDOZO LAW REVIEW [Vol. 19:1 growth rate in book value per share during that period is 23.8% compounded annually. Berkshire is now a holding company engaged in a variety of businesses, not including textiles. Berkshire's most important business is insurance, carried on principally through its 100% owned subsidiary, GEICO Corporation, the seventh largest auto insurer in the United States.

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That gives us an excess earnings figure, which must then be discounted, at an appropriate interest rate, back to graduation day. The dollar result equals the intrinsic economic value of the education. Some graduates will find that the book value of their education exceeds its intrinsic value, which means that whoever paid for the education didn't get his money's worth. In other cases, the intrinsic value of an education will far exceed its book value, a result that proves capital was wisely deployed. In all cases, what is clear is that book value is meaningless as an indicator of intrinsic value. An interesting accounting irony overlays a comparison of the reported financial results of our controlled companies with those of 1997] THE ESSAYS OF WARREN BUFFETT 189 the permanent minority holdings . . ..

The Little Book That Builds Wealth: The Knockout Formula for Finding Great Investments
by Pat Dorsey
Published 1 Mar 2008

Whereas a dollar of earnings or cash flow is exactly the same from Company A to Company B, the stuff that makes up book value can vary dramatically. For an asset-intensive firm like a railroad or a manufacturing firm, book value represents the bulk of the assets that generate revenue—things like locomotives, factories, and inventory. But for a service or technology firm, for example, the revenue-generating assets are people, ideas, and processes, none of which are generally contained in book value. Moreover, many of the competitive advantages that create economic moats are typically not accounted for in book value. Take Harley-Davidson as an example, which has a P/B ratio of about 5 as of this writing, meaning that the company’s current market value is about five times the rough net worth of its factories, land, and inventory of yet-to-be-built motorcycle parts.

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That seems pretty rich, until you consider that the value of the company’s brand name is not accounted for in book value, and it’s the brand that allows Harley to earn 25 percent operating margins and a 40 percent return on equity. There is one other quirk to book value worth knowing. It can often be inflated by an accounting convention known as goodwill, which is created when one company buys another. Goodwill is the difference between the acquired company’s tangible book value and the price paid for it by the buyer, and as you can imagine, it can be a huge number for firms without a lot of physical assets. (When America Online bought Time Warner, the book value of the combined firm increased by $130 billion in goodwill.)

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You’re best off subtracting goodwill from book value—and often when you see a price-to-book ratio that seems too good to be true, it’s because a big goodwill asset is boosting book value. So, with all these pitfalls, why bother with book value? Because it is extremely useful for one sector of the market that contains a disproportionate number of companies with solid competitive advantages: financial services. The assets of a financial company are typically very liquid (think of the loans on a bank’s balance sheet), so they are very easy to value accurately, which means that the book value of a financial services company is usually a pretty decent approximation of its actual tangible value.

Schaum's Outline of Bookkeeping and Accounting, Fourth Edition (Schaum's Outlines)
by Joel Lerner and Rajul Gokarn
Published 13 Sep 2009

The periodic charge is expressed as: Cost − scrap value = Annual Depreciation Charge Useful life (in years) For example, if the cost of a machine is $17,000, its scrap value is $2,000 and its estimated useful life is 5 years, depreciation can be calcu­ lated as follows: CHAPTER 15: Property, Plant, and Equipment: Depreciation $17,000 − $2,000 111 = $3,000 per year 5 years The entry to record the depreciation would be: Depreciation Expense, Machinery 3,000 Accumulated Depreciation, Machinery 3,000 In order to have sufficient documentation for an asset’s depreciation, a schedule should be prepared showing the asset’s cost, depreciation ex­ pense, accumulated depreciation, and most important of all, its book val­ ue. Book value is the balance of an asset’s cost less its accumulated de­ preciation to date. Book value should not be confused with market value. The book value is the difference between cost and accumulated depreciation. Market value is what the asset can actually be sold for on a given date. As an asset is used, accumulated depreciation increases and book value decreases. In the final year of the assets useful life, book value is the same as scrap value. At this point, the asset is said to be fully depre­ ciated.

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It does not recognize scrap val­ ue. Instead, the book value of the asset remaining at the end of the de­ preciation period becomes the scrap value. Under this method, the straight-line rate is doubled and applied to the declining book balance each year. Many companies prefer the double-declining balance method because of the faster write-off in the earlier years when the asset con­ tributes the most to the business and when the expenditure was actually made. The procedure is to apply a fixed rate to the declining book value of the asset each year. As the book value declines, the depreciation be­ comes smaller.

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If the purchaser will not pay par value, the corporation may issue stock at a price below par. Remember The difference between par value and the lower price is called the dis­ count. Book Value The book value per share of stock is obtained by dividing the stockhold­ ers’ equity amount by the number of shares outstanding. It thus represents the amount that would be distributed to each share of stock if the corpo­ ration were to be dissolved. Individual book values for common and preferred stock are defined by separating the stockholders’ equity amount into two parts and dividing each part by the corresponding number of shares.

Guide to business modelling
by John Tennent , Graham Friend and Economist Group
Published 15 Dec 2005

To calculate the annual cost use the formula: (Purchase price–Estimated disposal proceeds)/Estimated period of ownership For the truck example this will be: ($10,000⫺$4,000)/3⫽$2,000 per year The balance sheet will show the cost of the asset, the accumulated depreciation and the net book value. The profit and loss account will record the annual cost of depreciation, as shown in Chart 12.2. 130 12. CAPITAL EXPENDITURE AND WORKING CAPITAL Chart 12.2 Depreciation of an asset Year Balance sheet Cost Accumulated depreciation Net book value 0 1 2 3 4 10,000 – 10,000 10,000 (2,000) 8,000 10,000 (4,000) 6,000 10,000 (6,000) 4,000 0 0 0 0 2,000 2,000 2,000 0 Profit and loss Depreciation At the point of sale it is unlikely that the asset will realise exactly the net book value (unless it is part of a prearranged buy-back deal).

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For example, in I15 the formula is: ⫽MIN(trucks one column to the left[H15],trucks c/fwd[I10]⫺ trucks accounted for in rows below[sum(I16:I17]) 140 12. CAPITAL EXPENDITURE AND WORKING CAPITAL This triangular data table can now be used to control the asset base. Two important uses are to calculate the asset cost total and net book value of any sales (see Chart 12.14). Chart 12.14 Evaluating asset costs and net book value on disposal Row Asset cost Net book value of sales Calculation Take the number of assets in each column and multiply it by the purchase price for the year of acquisition Identify when an asset is no longer carried forward from one column to the next. For example, the asset purchased in year 0 (row 13) is removed in year 3 (column H) as it is no longer carried forward to year 4 (column I).

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Chart 12.3 Cash flow from purchase and sale of an asset Year Cash flow 0 (10,000) 1 0 2 0 3 0 4 4,000 Reducing balance depreciation Another method of depreciation that is used by some companies is “reducing balance”, which tries to approximate the typical curved behaviour of the market value graph by taking a proportion of the previous year’s net book value. Some companies use a set percentage, such as 25%, or it can be calculated using the formula: 1⫺((Estimated disposal proceeds/Purchase price)^(1/Estimated period of ownership)) Applying this to the truck example the reducing balance rate would be: 1⫺((4000/10000)^(1/3))⫽26.3194% Chart 12.4 Reducing balance depreciation of an asset Year Balance sheet Cost Accumulated depreciation Net book value Profit and loss Depreciation 0 1 2 3 4 10,000 0 10,000 10,000 (2,632) 7,368 10,000 (4,571) 5,429 10,000 (6,000) 4,000 0 0 0 0 2,632 1,939 1,429 0 Although the cash flow will be the same as for the straight line method, the cost impact is higher in the early years. 

Financial Statement Analysis: A Practitioner's Guide
by Martin S. Fridson and Fernando Alvarez
Published 31 May 2011

Accounting Principles Board (see). bona fide profit. A reported profit that represents a genuine increase in wealth as opposed to one that exploits a flaw in the accounting system and reflects no economic gain. book value. The amount at which an asset is carried on the balance sheet. Book value consists of the asset's construction or acquisition cost, less depreciation (see) and subsequent impairment of value, if applicable. An asset's book value does not rise as a function of an increase in its market value or inflation. (See also historical cost accounting.) breakeven rate. The production volume at which contribution (see) is equivalent to fixed costs (see), resulting in a pretax profit of zero.

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It is little wonder that specialists in credit analysis, particularly those who focus on the lower end of the ratings spectrum, pay little if any attention to the classic debt ratio. A key reason for the debt ratio's limited ability to discriminate according to credit risk is that it is calculated on the basis of book value. There are great disparities between book value and market value of equity, with food processing a prime example. The companies’ earnings power and by extension their share prices largely reflect the value embedded in the brand names they own, rather than their physical assets. Notwithstanding the analytical limitations of the debt ratio, the concept underlying it has considerable merit.

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Leverage also reaches a limit because lenders will not continue advancing funds beyond a certain point as financial risk increases. This leaves only book value per share, which can rise unceasingly through additions to retained earnings, as a source of sustainable growth in earnings per share. As long as the amount of equity capital invested per share continues to rise, more income can be earned on that equity, and (as the reader can demonstrate by working through the preceding formula) earnings per share can increase. A company's book value per share will not rise at all, however, if it distributes 100 percent of its earnings in dividends to shareholders.

The Investment Checklist: The Art of In-Depth Research
by Michael Shearn
Published 8 Nov 2011

At this price, Western Union is betting on the potential that it will be able to significantly increase Custom House’s cash flows. What is the enterprise value to book value paid for the business? If a business is paying a premium to book value for an acquisition, this is an expensive way to grow. It is easier for a business to earn a decent return on book value if it is not paying a high multiple of book at the start. For example, Target builds all of its stores denovo (i.e., from the ground up) and therefore builds stores at book value. If instead, Target were to purchase other retailers at a high multiple of book value—for example, if Target paid two times book value—then it would earn a lower return on its investment.

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Include Property, Plant, and Equipment Costs You must include the purchase of fixed assets necessary to operate the business, such as real estate, plant, and equipment. You need to determine whether to use the gross book value of these assets or the depreciated, net book value of these assets: Gross book value takes the historical or acquisition cost of assets without deducting accumulated depreciation or amortization. Net book value is the value if you remove accumulated depreciation. Because the net book value of an asset is less each year, this causes ROIC to increase each year. This results in a lower rate of return during the early stages of an investment and higher rates of return in later stages, as the asset base decreases.

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Buffett estimated that Gatorade would have increased Coke’s worldwide case sales less than 2 percent, while saddling Coke with Quakers Oat’s slow-growth food business.23 If the business can use its overvalued stock to make acquisitions, it favors the acquiring shareholders. For example, many banks have been able to create value by using their high stock prices, such as two times book value, to buy banks priced at substantial discounts to book value, such as 0.5 times book value. Key Points to Keep in Mind Understanding how and why management makes acquisitions is one of the few concrete ways for investors to reduce uncertainty in assessing a company’s chances of success. As promising as it sounds, when you hear managers utter the word synergy when they make an acquisition, you should be extremely skeptical that the cost savings or revenue increases they promise will materialize.

One Up on Wall Street
by Peter Lynch
Published 11 May 2012

As long as Ford doesn’t lose all its cash, nobody has to worry about their omitting dividends today. BOOK VALUE Book value gets a lot of attention these days—perhaps because it’s such an easy number to find. You see it reported everywhere. Popular computer programs can tell you instantly how many stocks are selling for less than the stated book value. People invest in these on the theory that if the book value is $20 a share and the stock sells for $10, they’re getting something for half price. The flaw is that the stated book value often bears little relationship to the actual worth of the company. It often understates or overstates reality by a large margin.

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Look what happened a few years ago when Warren Buffett, the savviest of investors, decided to close down the New Bedford textile plant that was one of his earliest acquisitions. Management hoped to get something out of selling the loom machinery, which had a book value of $866,000. But at a public auction, looms that were purchased for $5,000 just a few years earlier were sold for $26 each—below the cost of having them hauled away. What was worth $866,000 in book value brought in only $163,000 in actual cash. If textiles had been all there was to Buffett’s company, Berkshire Hathaway, it would have been exactly the sort of situation that attracts the attention of the book-value sleuths. “Look at this balance sheet, Harry. The looms alone are worth $5 a share, and the stock is selling for $2.

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When you buy a stock for its book value, you have to have a detailed understanding of what those values really are. At Penn Central, tunnels through mountains and useless rail cars counted as assets. MORE HIDDEN ASSETS Just as often as book value overstates true worth, it can understate true worth. This is where you get the greatest asset plays. Companies that own natural resources—such as land, timber, oil, or precious metals—carry those assets on their book at a fraction of the true value. For instance, in 1987, Handy and Harman, a manufacturer of precious metals products, had a book value of $7.83 per share, including its rather large inventories of gold, silver, and platinum.

Stocks for the Long Run 5/E: the Definitive Guide to Financial Market Returns & Long-Term Investment Strategies
by Jeremy Siegel
Published 7 Jan 2014

This is another reason why the rising share of corporate profits to US GDP is not a cause for alarm. Book Value, Market Value, and Tobin’s Q The book value of a firm has often been used as a valuation yardstick. The book value is the value of a firm’s assets minus its liabilities, evaluated at historical costs. The use of aggregate book value as a measure of the overall value of a firm is severely limited because book value uses historical prices and thus ignores the effect of changing prices on the value of the assets or liabilities. If a firm purchased a plot of land for $1 million that is now worth $10 million, examining the book value will not reveal this. Over time, the historical value of assets becomes less reliable as a measure of current market value.

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Let the stock buyer, if he lays any claim to intelligence, at least be able to tell himself, first, how much he is actually paying for the business, and secondly, what he is actually getting for his money in terms of tangible resources.21 Although Fama and French found that the ratio of book to market value was a slightly better value metric than the dividend yield or P/E ratio in explaining cross-sectional returns in their 1992 research, there are conceptual problems with using book value as a value criterion. Book value does not correct for changes in the market value of assets, nor does it capitalize research and development expenditures. In fact, over the time period 1987 through 2012, our studies showed that book value underperformed either dividend yields, P/E ratios, or cash flows in explaining returns.22 Since it is likely that an increasing fraction of a firm’s worth will be captured by intellectual property, book value may become an even more imperfect indicator of firm value in the future.

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A number of academic papers, beginning with Dennis Stattman’s in 1980 and later supported by Fama and French, suggested that price/ book ratios might be even more important than price/earnings ratios in predicting future cross-sectional stock returns.20 Just as they did with P/E ratios and dividend yields, Graham and Dodd considered book value to be an important factor in determining returns: [We] suggest rather forcibly that the book value deserves at least a fleeting glance by the public before it buys or sells shares in a business undertaking. . . . Let the stock buyer, if he lays any claim to intelligence, at least be able to tell himself, first, how much he is actually paying for the business, and secondly, what he is actually getting for his money in terms of tangible resources.21 Although Fama and French found that the ratio of book to market value was a slightly better value metric than the dividend yield or P/E ratio in explaining cross-sectional returns in their 1992 research, there are conceptual problems with using book value as a value criterion.

Principles of Corporate Finance
by Richard A. Brealey , Stewart C. Myers and Franklin Allen
Published 15 Feb 2014

Each year KPMG, one of America’s largest accounting firms, gives its opinion that GE’s financial statements present fairly in all material respects the company’s financial position, in conformity with U.S. generally accepted accounting principles (commonly called GAAP). However, the book value of GE’s assets measures only their original (or “historical”) cost less an allowance for depreciation. This may not be a good guide to what those assets are worth today. One can go on and on about the deficiencies of book value as a measure of market value. Book values are historical costs that do not incorporate inflation. (Countries with high or volatile inflation often require inflation-adjusted book values, however.) Book values usually exclude intangible assets such as trademarks and patents. Also accountants simply add up the book values of individual assets, and thus do not capture going-concern value.

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Going-concern value is created when a collection of assets is organized into a healthy operating business. Book values can nevertheless be a useful benchmark. If a financial analyst says, “Holstein Oil sells for two times book value,” she is effectively saying that Holstein has doubled its shareholders’ past investments in the company. Book values may also be useful clues about liquidation value. Liquidation value is what investors get when a failed company is shut down and its assets are sold off. Book values of “hard” assets like land, buildings, vehicles, and machinery can indicate possible liquidation values.

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Below this we show what happens to the balance sheet when the two firms merge. We assume that B Corporation has been purchased for $18 million, 180% of book value. TABLE 31.3 Accounting for the merger of A Corporation and B Corporation assuming that A Corporation pays $18 million for B Corporation (figures in $ millions). Key: NWC = net working capital; FA = net book value of fixed assets; D = debt; E = book value of equity. Why did A Corporation pay an $8 million premium over B’s book value? There are two possible reasons. First, the true values of B’s tangible assets—its working capital, plant, and equipment—may be greater than $10 million.

Concentrated Investing
by Allen C. Benello
Published 7 Dec 2016

We then create four portfolios of increasing concentration. The “Cheapest Half” contains the half of stocks in the Market portfolio with the lowest price-to-book value, or 1,959 stocks as of September 2014. The “Cheapest Third” contains the third with the lowest price-to-book value, or 1,105 stocks; the “Cheapest Fifth” contains the 20 percent of stocks with the lowest price-to-book value, 749 stocks, and the “Cheapest Tenth” contains the 10 percent of stocks with the lowest price-to-book value, or 407 stocks, all as of September 2014. The portfolios are rebalanced annually, and we track the performance from July 1, 1929, through to September 30, 2014.

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What happens if we rank stocks by undervaluation and then examine the performance of increasingly concentrated portfolios containing increasingly undervalued stocks? While the investors in this book favor free cash flowbased metrics, one very rough proxy for undervaluation is the extent to which a stock’s market price is discounted from its book value. The metric for considering this is known as price-to-book value. All else being equal, the lower the price-to-book value, the cheaper the stock, and vice versa. Using data collated by Kenneth R. French, the Roth Family Distinguished Professor of Finance at the Tuck School of Business at Dartmouth College, we can examine a universe of stock portfolios ranked on price-tobook value.

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I believe indeed the success of industry is that you always think long term, so even if incidents like mergers or takeovers cause you to be out in the shorter term, you take the long-term decision as if you were to be the owner forever, that is healthy for the industry, and therefore also for its shareholders. I think that has been the success of our operation. Table 6.1 shows the remarkable growth in Siem Industries’ book value per share since 1990. Table 6.1â•… Growth in Siem Industries Book Value Per Share (1990 to 2014) Shareholder’s Year Equity Shares Outstanding* Book Value/Share Jun 30, 1987 $5,274 16,240,000 $0.32 Jun 30, 1988 $2,975 17,573,332 $0.17 Jun 30, 1989 $17,214 17,573,332 $0.98 Jun 30, 1990 $36,271 23,301,788 $1.56 Jun 30, 1991 $50,542 25,751,788 $1.96 Jun 30, 1992 $49,778 24,647,312 $2.02 Jun 30, 1993 $80,375 24,464,112 $3.29 Jun 30, 1994 $93,513 24,424,112 $3.83 Dec 31, 1995 $125,236 25,185,424 $4.97 Dec 31, 1996 $193,447 19,524,624 $9.91 Dec 31, 1997 $291,016 19,524,624 $14.91 Dec 31, 1998 $189,463 19,066,907 $9.94 Dec 31, 1999 $308,207 17,354,657 $17.76 Dec 31, 2000 $306,561 17,002,244 $18.03 Dec 31, 2001 $259,875 16,996,644 $15.29 Dec 31, 2002 $289,834 16,796,644 $17.26 Dec 31, 2003 $307,850 16,794,144 $18.33 Dec 31, 2004 $426,490 16,793,744 $25.40 Dec 31, 2005 $451,042 15,052,492 $29.96 Dec 31, 2006 $560,935 15,052,492 $37.27 Dec 31, 2007 $883,623 15,529,927 $56.90 Dec 31, 2008 $1,028,467 15,379,927 $66.87 Dec 31, 2009 $1,158,613 15,379,927 $75.33 Dec 31, 2010 $1,304,984 15,359,927 $84.96 Dec 31, 2011 $1,823,855 15,289,927 $119.28 Dec 31, 2012 $2,086,610 15,289,927 $136.47 Dec 31, 2013 $2,227,606 15,139,681 $147.14 Dec 31, 2014 $2,053,537 15,139,681 $135.64 Compounded Annual Gain in Book Value/Share—1987–2014 Adjusted for 4-1 split * 156 25.6% Kristian Siem: The Industrialist 157 Notes 1.

The Finance Book: Understand the Numbers Even if You're Not a Finance Professional
by Stuart Warner and Si Hussain
Published 20 Apr 2017

Nice to know Fair value Goodwill is calculated as the difference between the fair value of what is paid for the purchase and the fair value of net assets acquired. Fair value should not be confused with book value. The fair value of assets often bears little relationship to the book value if businesses choose to record their fixed assets at their original purchase (historic) cost rather than revalue (see Chapter 17 Revaluation). Over time fixed assets (in particular land and buildings) are likely to increase in value leading to a growing divide between fair values and book values. A revaluation of fixed assets to fair value is therefore typically required to calculate goodwill. Other intangibles Intangible assets are fixed assets that have no physical form and include development costs, patents, trademarks and software.

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For shop assets a discounted cashflow is calculated for each shop using historic cashflows including attributable overheads, a zero per cent growth rate, the Group’s cost of capital of ten per cent and an appropriate assumption regarding the remaining lease term. The net book value of the relevant assets attributable to the shop is impaired to the extent that the net present value of the cashflows is lower than the net book value. Supply chain assets are impaired to their estimated net realisable value. Included within disposals for the prior year were fixtures and fittings with a net book value of £849,000 which related to the closure of the in-store bakeries. The loss on disposal of these assets was £664,000 and formed part of the exceptional charge detailed in Note 4.

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Depreciation is important as it directly affects accounting profits (it is an expense which reduces profit) as well as the value of assets in the balance sheet. Companies have a choice over their depreciation policies (see Chapter 19 Accounting and financial reporting standards). While these policies must be reasonable and consistent, they allow an element of discretion which directly affects financial results. Net book value In a balance sheet TFA are stated at NBV (net book value). NBV is the cost of TFA less accumulated depreciation (cumulative depreciation expense over time). For example, ABC Ltd’s NBV is calculated as follows: £ TFA cost 100,000 Accumulated depreciation (30,000) NBV 70,000 It is important not to confuse NBV with market value, which is determined by external economic factors.

Efficiently Inefficient: How Smart Money Invests and Market Prices Are Determined
by Lasse Heje Pedersen
Published 12 Apr 2015

To formally link earnings and dividends, we define the earnings as the net income, NIt, and also keep track of the stock’s book value, Bt. The book value is increased by the net income and reduced by capital paid out as dividends, and this key link is called the “clean surplus accounting relation”: If we solve for dividends in the clean surplus relation and plug this expression into the dividend discount model, then we get the residual income model:3 where the residual income, RI, is defined as The residual income model says that the intrinsic value of the stock is equal to the book value plus the present value of the entire stream of future residual income.

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Residual income is of course negative if the earning is negative, but residual income can also be negative with a positive earning that is smaller than the cost of capital. If the present value of all residual incomes is negative, this result corresponds to the intrinsic value being below the book value; otherwise, the intrinsic value is above the book value. In summary, the intrinsic value is the current book value plus the present value of the additional (or residual) future profits that we expect to earn—above what could be expected based on the current book equity. 6.4. OTHER APPROACHES TO EQUITY VALUATION Relative Valuation Equity investors often value stocks based on the valuation of other comparable stocks.

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Following Asness, Frazzini, and Pedersen (2013), we can classify a stock’s quality characteristics in four broad groups based on their version of Gordon’s growth model: The left-hand side is the intrinsic value of the stock divided by its book value. We divide by book value as a normalization because otherwise differences in stocks’ equity values would be mostly driven by size. The right-hand side of the equation shows the main quality characteristics, namely those that justify a higher valuation multiple. Here, profitability (or return on equity) is defined as the profits (measured as net income, gross profits, or otherwise) per unit of book value, Et(NIt+1)/Bt. Payout is defined as the fraction of the profits that are paid out to shareholders, Et(Dt+1)/Et(NIt+1).

The Einstein of Money: The Life and Timeless Financial Wisdom of Benjamin Graham
by Joe Carlen
Published 14 Apr 2012

Graham was similarly concerned with deciphering a company's true book value, that is, the value of all assets available (i.e., assets minus liabilities) to the security under consideration. In The Interpretation of Financial Statements, Graham and his coauthor Spencer B. Meredith illustrate the potentially dramatic difference between book value and what Graham calls net book value: If you had not deducted the intangibles and had simply divided the $1,800,000 by the 17,000 shares you would have found the book value per share to be $105.88. You will note that there is quite a difference between this book value and the net book value of $76.47 a share.66 Financial “detective” that he was, Graham was able to look beyond first appearances (stock price, stated numbers, etc.) and, with his exceptional grasp of mathematics, identify the numerical “criminals” and determine the real state of a business's earning power and financial position.

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accounting practices, unethical, 97 “active” investors, 84 “aggressive” investors, 84 Agricultural Adjustment Act (AAA), 209 algorithms, 128 Allen, John W., 219 alpha coefficient, 262 American tax law, 112 Amigues, Marie Louise “Malou,” 237, 270–79, 301 analysis and writing, quantitative, 60 Anderson, Ed, 244, 249–50 “Anglicize” names, 99 annual earnings, reported, 167 Aoki, Hideyuki, 258 arbitrage, 112 arbitrage opportunity, defined, 105 Arffa, Robert, 258 Arnott, Rob, 171 Asimov, Isaac, 65 Auerbach, Rita, 21 balance sheets, 121 balance-sheet valuation, 96 Barman, Jacob, 65–66 Baruch, Bernard, 147–50 Baruch, Herman, 148 bear market, 308 Beebower, Gilbert, 166 Benedetti, Mario, 274 “Benjamin Graham Joint Account,” 143, 183 Berkshire Hathaway, 50, 55, 123, 136, 229, 247, 261 Berle, Adolph A., 184 beta coefficient, 262 Bill Nygren/Oakmark Funds, 257 Bogle, John, 165, 256 “bond house,” 113 bonds, convertible, 112 bond selection, 47–48 “book value,” 96 book value vs. net book value, 98 Boyle, David, 218 brand, uniqueness of, 54 Brandes, Charles, 47, 83, 127, 175, 208, 244, 255, 305 Brandes Investment Partners, 47, 306 Bretton Woods conference, 217 Brinson, Gary, 166 British parliament, 21 Brown, Chester, 60–61 Buerger's disease, 186 Buffett, Howard (father of Warren), 225 Buffett, Warren Howard Graham Buffett (first son), 233 and the Internet bubble, 37, 49 and margin of safety, 35 marriage to Susan “Susie,” 233 as most successful investor in human history, 200 as opportunistic investor, 172 “Oracle of Omaha” (nickname), 37 personal wealth estimate, 167 photographic memory of, 227 Buffett Partnership, Ltd., 247 bull markets, 175 business cycle, normal, 127 business valuations, 130 Calandro, Joseph, 315 call options, 112 charge-offs, special, 97 Charles Royce/Royce Funds, 257 Chartered Financial Analyst (CFA), 196, 291 Chatman, Seymour, 58, 106, 270 Chernow, Ron, 145 chief rabbi of Warsaw, 18–19 Chris Davis/Davis Funds, 257 Churchill, Winston, 150 “circulars” (research reports), 111 Clinton, W.

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Regarding Mattel, a comparative view of its earnings per share (EPS) in 2010 relative to its 2000 EPS indicates earnings growth of 161 percent29—several times the required 33.33 percent minimum. Moderate Ratio of Price to Assets: The market price for the stock under consideration should not exceed the net book value figure (representing the issuing company's total tangible assets minus its total liabilities) per share by more than 50 percent. Mattel's stock price is $27.83,30 and its book value per share is $7.71.31 Therefore, its price to assets ratio is 3.61–80 percent higher than the maximum of 2.0 stipulated by Graham. Moderate Ratio of Price to Earnings: The price to earnings (P/E) ratio should not exceed 15.

Stocks for the Long Run, 4th Edition: The Definitive Guide to Financial Market Returns & Long Term Investment Strategies
by Jeremy J. Siegel
Published 18 Dec 2007

CHAPTER 7 Stocks: Sources and Measures of Market Value 117 Book Value, Market Value, and Tobin’s Q The book value of a firm has often been used as a valuation yardstick. The book value is the value of a firm’s assets minus its liabilities, evaluated at historical costs. The use of aggregate book value as a measure of the overall value of a firm is severely limited because book value uses historical prices and thus ignores the effect of changing prices on the value of the assets or liabilities. If a firm purchased a plot of land for $1 million that is now worth $10 million, examining the book value will not reveal this. Over time, the historical value of assets becomes less reliable as a measure of current market value.

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Let the stock buyer, if he lays any claim to intelligence, at least be able to tell himself, first, how much he is actually paying for the business, and secondly, what he is actually getting for his money in terms of tangible resources.21 Although Fama and French found that the ratio of book to market value was a slightly better value metric than the dividend yield or P-E ratio in explaining cross-sectional returns in their 1992 research, there are conceptual problems with using book value as a value criterion. Book value does not correct for changes in the market value of assets, nor does it capitalize research and development (R&D) expenditures. In fact, over the time period 1987 through 2006, our studies showed that book value underperformed either dividend yields, P-E ratios, or cash flows in explaining returns.22 Since it is likely that an increasing fraction of a firm’s worth will be captured by intellectual property, book value may become an even more imperfect indicator of firm value in the future.

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CHAPTER 9 Outperforming the Market FIGURE 151 9–4 P-E Ratios for the S&P 500 Index Companies, 1957 through December 2006 TABLE 9–4 Returns on the S&P 500 Stocks Sorted by P-E Ratios P-E Ratio Geometric Return Lowest Low Middle High Highest S&P 500 14.30% 13.52% 11.11% 10.04% 8.90% 11.13% Arithmetic Return 15.35% 13.52% 11.11% 10.04% 8.90% 12.39% Standard Deviation Beta Excess Return over CAPM 15.50% 15.79% 14.59% 14.95% 18.84% 16.52% 0.6347 0.6067 0.6230 0.7077 0.8546 1.0000 5.51% 4.99% 2.30% 0.70% -0.78% 0.00% 152 PART 2 Valuation, Style Investing, and Global Markets that price-to-book ratios might be even more important than price-toearnings ratios in predicting future cross-sectional stock returns.20 Like P-E ratios and dividend yields, Graham and Dodd considered book value to be an important factor in determining returns: [We] suggest rather forcibly that the book value deserves at least a fleeting glance by the public before it buys or sells shares in a business undertaking. . . . Let the stock buyer, if he lays any claim to intelligence, at least be able to tell himself, first, how much he is actually paying for the business, and secondly, what he is actually getting for his money in terms of tangible resources.21 Although Fama and French found that the ratio of book to market value was a slightly better value metric than the dividend yield or P-E ratio in explaining cross-sectional returns in their 1992 research, there are conceptual problems with using book value as a value criterion.

The Acquirer's Multiple: How the Billionaire Contrarians of Deep Value Beat the Market
by Tobias E. Carlisle
Published 13 Oct 2017

De Bondt and Thaler tested the idea by finding undervalued and expensive stocks and then tracking the profits. They ranked groups of stocks by price-to-book value. Book value is the value of a company’s assets (what it owns) less its liabilities (what it owes). It is one measure of a company’s value. Price-to-book value measures how much you pay for that value. If you pay less than book value, you may be getting a bargain. If you pay more than book value, you may be overpaying. De Bondt and Thaler put the stocks into five groups. We’ll call the cheapest group the undervalued stocks. They called the expensive group the expensive stocks.

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(Remember, high return on equity is what makes businesses “wonderful.”) If you only looked at asset growth and return on equity, you might expect excellent stocks to beat unexcellent stocks. But Clayman’s excellent stocks were undervalued, and the excellent stocks were expensive. Clayman’s unexcellent stocks traded at 0.6 times book value. Peters’s excellent stocks traded at 2.5 times book value. In other words, the unexcellent stocks were fair companies at wonderful prices, and the excellent stocks were wonderful companies at fair prices. Which stocks were the better investment? In 2013, Barry B. Bannister tested Clayman’s unexcellent stocks from June 1972 to June 2013.

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The profitability and asset growth trended to the average. The businesses of the unexcellent stocks also worsened but not as much as the excellent stocks. Clayman’s unexcellent stocks beat the market because the discount between price and value closed. In other words, the price-to-book values went up. The unexcellent stocks’ price-to-book value trended to the average, and the stock prices went up. The excellent stocks stayed better businesses than the unexcellent stocks. But the excellent stocks’ valuation went down, so the stock price of the excellent stocks lagged. This is mean reversion. Mean reversion means the stock prices of undervalued stocks are likely to rise over time, and the stock prices of expensive stocks fall.

The Big Secret for the Small Investor: A New Route to Long-Term Investment Success
by Joel Greenblatt
Published 11 Apr 2011

There are also a number of what are known as fundamentally weighted index strategies that have some definite advantages over simply equally weighting all stocks. For these strategies, instead of using market capitalization to decide how much to buy of each stock in the index, other measures of economic size are used. The size of a company can be measured by the amount of sales the company has, by earnings, by a company’s book value (essentially its assets minus its liabilities), by dividends, or by any number or combination of other measures of economic size. The idea behind these indexes is to avoid the problems that come from using market capitalization (price multiplied by shares outstanding) to determine weighting. Since a stock’s price sometimes reflects the emotions of Mr.

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Since a stock’s price sometimes reflects the emotions of Mr. Market (which cause us to invest too much in expensive stocks and too little in bargain stocks), it’s an advantage that none of these other measures of company size used in a fundamentally based index (like total sales, earnings, or book value) are affected by stock price at all. The result of creating an index weighted by attributes that reflect economic footprint rather than market cap will still tend to weight the index toward larger companies. The benefit of weighting larger companies with greater amounts of sales, earnings, etc. more heavily is that fundamentally based indexes will end up owning businesses in proportions that are much more representative of the overall market and economy than equal weighting would provide.

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As a result, an index that uses fundamental weightings to determine how much to buy of each stock will tend to place more money in companies with larger market capitalizations and less money in companies with smaller market capitalizations. This makes it much easier for fundamentally weighted indexes to effectively handle larger amounts of money than it is for equally weighted indexes. In addition, since the fundamental characteristics of a company (such as sales, earnings, and book value) don’t jump around like stock prices do, fundamental weightings don’t change all that drastically or often. So unlike equally weighted indexes that must reweight frequently along with changes in stock prices, not that much trading has to be done to keep the companies in the fundamentally weighted index at their proper weighting.

A Random Walk Down Wall Street: The Time-Tested Strategy for Successful Investing
by Burton G. Malkiel
Published 10 Jan 2011

But certainly regarding early 2009, when the stocks of major banks sold at very low prices relative to their book values, it is hard to argue that investors did not consider them in danger of going bankrupt. And even those who would argue that low-market-to-book-value stocks provide higher returns because of investor irrationality find the Fama-French risk factors useful. THE FAMA-FRENCH RISK FACTORS * * * Beta: from the Capital-Asset Pricing Model Size: measured by total equity market capitalization Value: measured by the ratio of market to book value * * * Some analysts would add further variables to the Fama-French three-factor risk model.

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The low multiples might reflect not value but a profound concern about the viability of the companies. Stocks That Sell at Low Multiples of Their Book Values Tend to Produce Higher Subsequent Returns Another predictable pattern of return is the relationship between the ratio of a stock’s price to its book value (the value of the company’s assets as recorded on its books) and its later return. Stocks that sell at low ratios of price to book value tend to produce higher future returns. This pattern appears to hold for both U.S. and many foreign stock markets, as has been shown by Fama and French.

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Behavioralists argue that such results raise questions about the efficiency of the market if one accepts beta as the appropriate measure of risk. But price-to-book-value (P/BV) ratios could reflect another risk factor that is priced into the market. Companies in some degree of financial distress are likely to sell at low prices relative to book values. For example, the big money center banks such as Citigroup and Bank of America sold at prices well below their reported book values during early 2009, when it appeared that these institutions could quite possibly go bankrupt. Fama and French argue that a three-factor risk model (including P/BV and size as well as beta as measures of risk) is the appropriate benchmark against which any supposed inefficiencies should be measured.

A Random Walk Down Wall Street: The Time-Tested Strategy for Successful Investing (Eleventh Edition)
by Burton G. Malkiel
Published 5 Jan 2015

But certainly regarding early 2009, when the stocks of major banks sold at very low prices relative to their book values, it is hard to argue that investors did not consider them in danger of going bankrupt. And even those who would argue that low-market-to-book-value stocks provide higher returns because of investor irrationality find the Fama-French risk factors useful. THE FAMA-FRENCH RISK FACTORS • Beta: from the Capital-Asset Pricing Model • Size: measured by total equity market capitalization • Value: measured by the ratio of market to book value Some analysts would add further variables to the Fama-French three-factor risk model.

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Another predictable pattern of return is the relationship between the ratio of a stock’s price to its book value (the value of the company’s assets as recorded on its books) and its later return. Stocks that sell at low ratios of price to book value tend to produce higher future returns. This pattern appears to hold for both U.S. and many foreign stock markets, as has been shown by Fama and French, whose work was described in chapter 9. The Negatives. Never forget that low P/E multiples and low price-to-book-value (P/BV) ratios can reflect risk factors that are priced into the market. Companies in some degree of financial distress are likely to sell at low prices relative to earnings and book values.

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The factors derive from their empirical work showing that returns are related to the size of the company (as measured by the market capitalization) and to the relationship of its market price to its book value. Fama-French argue that smaller firms are relatively risky. One explanation might be that they will have more difficulty sustaining themselves during recessionary periods and thus may have more systematic risk relative to fluctuations in GDP. Fama-French also argue that stocks with low market prices relative to their book values may be in some degree of “financial distress.” These views are hotly debated, and not everyone agrees that the Fama-French factors measure risk.

The Outsiders: Eight Unconventional CEOs and Their Radically Rational Blueprint for Success
by William Thorndike
Published 14 Sep 2012

He focused on newfangled metrics, like EBITDA and internal rate of return (IRR), that were becoming the lingua franca of the nascent private equity industry, and he eschewed more traditional accounting measures, such as reported earnings and book value, that were Wall Street’s preferred financial metrics at the time. He had particular disdain for book value, once declaring during a rare appearance at an industry conference that “book equity has no meaning in our business,” a statement that was greeted with stunned silence by the audience, according to longtime analyst John Bierbusse. Mauboussin added, “You have to have fortitude to look past book value, EPS, and other standard accounting metrics which don’t always correlate with economic reality.”7 . . .

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A proxy for these returns can be seen in figure 2-1, which shows the approximately eightfold growth in book value at Teledyne’s insurance subsidiaries from 1975 through 1985, when Singleton began the process of dismantling his company. During the period from 1984 to 1996, Singleton shifted his focus from portfolio management to management succession (in 1986, he tapped Roberts to succeed him as CEO, retaining the chairman’s title) and to optimizing shareholder value in the face of stagnating results at Teledyne’s operating divisions. To accomplish these objectives, Singleton resorted to new tactics, again confounding Wall Street. FIGURE 2-1 Teledyne insurance book value ($ in millions)a a.

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See’s: The Turning Point A pivotal investment in Buffett’s shift in investment focus from “cigar butts” to “franchises” was the acquisition in 1972 of See’s Candies. Buffett and Munger bought See’s for $25 million. At the time, the company had $7 million in tangible book value and $4.2 million in pretax profits, so they were paying a seemingly exorbitant multiple of over three times book value (but only six times pretax income). See’s was expensive by Graham’s standards, and he would never have touched it. Buffett and Munger, however, saw a beloved brand with excellent returns on capital and untapped pricing power, and they immediately installed a new CEO, Chuck Huggins, to take advantage of this opportunity.

King Icahn: The Biography of a Renegade Capitalist
by Mark Stevens
Published 31 May 1993

Icahn chose Tappan as an early target for two critical reasons: First, he believed that a turnaround was in the offing and the company’s stock price failed to reflect this potential. Second, Tappan’s book value of roughly $20 a share was more than two times the price of its stock. This spread between book and market value was where Icahn saw his ultimate profit. By flushing out a buyer willing to acquire the company or its assets at a price somewhere between the price Icahn paid for his shares and the book value per share, he was assured of a substantial return on his investment. As Icahn’s war-room tactician, Kingsley drafted the takeover strategies built around the Tappan raid.

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Icahn was not the only one to see that REIT purchases made for good bottom fishing. With the real estate sector apparently on the verge of a sharp recovery, buying REIT shares while their prices were still depressed promised substantial profits over a narrow time frame. Considering the significant spread between book value and stock prices, investors saw minimal downside risk. Theoretically, all they had to do was wait for the gap to close and cash in their chips. “As an expert on REITs, I was buying stock in a number of them,” said attorney Marvin Olshan. “At one point, I placed an order with Icahn & Company.

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“A research report had said that Baird & Warner was worth about $15 a share, but I told Carl that if it were liquidated, it could yield as much as $22 a share. I don’t know how much I had to do with it, but he proceeded to buy the stock and he asked me to represent him as his lawyer.” If the stock price capped at Baird & Warner’s book value of $14 a share, Icahn would earn a tidy $5.50 per share, or about 65 percent on his investment. “A REIT was like a closed-end fund in real estate,” Kingsley said. “Because the Baird & Warner REIT was undervalued, it was a natural. We were confident we could profit on it.” But Icahn had another motive.

Fred Schwed's Where Are the Customers' Yachts?: A Modern-Day Interpretation of an Investment Classic
by Leo Gough
Published 22 Aug 2010

So how do we go about doing this? One way is to look at a company’s price to book ratios. The price to book ratio is the price per share/ book value of equity per share. The book value is the total assets of the company minus its liabilities. Book value tends to be a relatively stable number, and is useful for comparisons between firms operating under similar accounting rules. Remember though, that some countries let firms state a relatively high book value, so you will have to make adjustments for this, and that some industries, such as high technology, may not have many tangible assets. DEFINING IDEA… (An investor) should be able to justify every purchase he makes and each price he pays by impersonal, objective reasoning

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If this continues in the future, the rewards of investing in such ‘bargains’ should be reasonably good. The famous value investor, Benjamin Graham, who died in the 1950s, always looked for low price/book ratios as one of the most important criteria for investment. However, his ceiling was very stringent; he was only interested in companies whose share price was less than two thirds of book value. Companies like this tend not to be growing – Graham’s attitude was that they were ‘like cigar butts with one or two good puffs left in them’. Another useful measure, this time for analysing firms that are expected to grow fast, is the price/equity to growth (PEG) ratio. This is calculated as the price earnings ratio (P/E) / the expected growth rate per share.

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When you calculate the P/E, you must make sure that it matches the earning period that you are using. A third useful ratio is the price/sales ratio. This is the market value of equity/ annual sales. Some analysts like this ratio because it removes several possible biases. For example, many companies calculate their book value and earnings per share differently, which makes them hard to compare with one another. The price/sales ratio, on the other hand, deals with ‘real’ sales figures and makes the figures easier to compare. The companies that are most likely to be undervalued on this measure are those with a low price/sales ratio and high profit margins.

The Joys of Compounding: The Passionate Pursuit of Lifelong Learning, Revised and Updated
by Gautam Baid
Published 1 Jun 2020

So, although businesses exist under the assumption of operating forever, the reality is that their stocks have uncertain maturity dates. 3. Par value. The par value of a stock is the book value of its equity. This is an accounting value that approximates the value of a business to its shareholders if it were to stop operations immediately—that is, it does not account for future growth. It is the difference between what a company owns (assets) and what that company owes to others (liabilities). Buffett has cautioned investors not to confuse book value with intrinsic value: “Of course, it’s per-share intrinsic value, not book value, that counts. Book value is an accounting term that measures the capital, including retained earnings, that has been put into a business.

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This leads to an important conclusion: when investing in short-term opportunities like commodities, cyclicals, and special situations, pay greater attention to price and mean reversion, but when investing in long-term compounders, pay maximum attention to the quality of business and management above all else. For example, buying a low-quality public sector bank in India at 30 percent to 40 percent of book value can work out well if and when the stock gets revalued to 100 percent of book value. But over ten- or fifteen-year periods or longer, paying even three times book value for a high-quality, well-managed franchise like HDFC Bank should deliver better results. (Between two lenders with similar levels of return on equity and growth, I would prefer the lender with a higher price-to-book valuation for two reasons: (1) growth capital in the future would be available at a lower equity dilution, and (2) a higher price-to-book valuation tends to signify important nondisclosed aspects like superior underwriting skills, robust internal processes, and better quality of the loan book.)

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Discount that number back from the future to arrive at fair value. Many times, conventional valuation measures based on reported earnings or accounting book values result in an optically high price-to-earnings or price-to-book ratio for a moated business, and investors end up making costly mistakes of omission because they find these businesses to be overvalued. But, as Buffett has said: Whether appropriate or not, the term “value investing” is widely used. Typically, it connotes the purchase of stocks having attributes such as a low ratio of price to book value, a low price-earnings ratio, or a high dividend yield. Unfortunately, such characteristics, even if they appear in combination, are far from determinative as to whether an investor is indeed buying something for what it is worth and is therefore truly operating on the principle of obtaining value in his investments.

House of Cards: A Tale of Hubris and Wretched Excess on Wall Street
by William D. Cohan
Published 15 Nov 2009

CVRs were popular once upon a time on Wall Street as a way to cleverly bridge the valuation gap between buyers and sellers or to offer more value to sellers if certain hurdles were met, most famously in Viacom's 1993 $10 billion acquisition of Paramount Communications. But CVRs have been used infrequently since then. In proposing the use of a CVR-like security, Parr told Braunstein, the JPMorgan M&A banker, “You're fundamentally telling us you don't believe our book value. We do believe our book value, so that this should be easy to give. You don't believe it. We believe it, so we'll take a CVR. If you're right and there's nothing there, well, fine.” But JPMorgan wouldn't go for it. When Parr came back into the room to explain that Braunstein told him the offer would be $2 period, Cohen asked him if he knew why.

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Usually, the deal dynamic is such that a small percentage increase in price—say, a move to $70 a share from $65 a share, to cite the case of InBev's 2008 acquisition of Anheuser-Busch—combined with a relatively quick resolution will yield a desirable annualized return. Everyone's happy and the deal gets done. In this case, a very different dynamic quickly became apparent. Since Bear Stearns's book value was $84 per share and the offer price was $2 a share, there was a sense in the market that the potential upside on pushing to recut the deal was huge, even if the book value was discounted aggressively. The Barron's analysis helped to fuel this thinking among investors. Even if an arb bought the Bear stock at, say, $4 per share on Monday, if the deal were renegotiated to $6, the nominal return would be a whopping 50 percent and the annualized return would be even higher.

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Moszkowski wrote a report, in July 2000, explaining what Cayne had told him: that for the first time Bear Stearns would consider selling the firm if Cayne could get four times book value. Cayne “had signaled something of a change of attitude,” Moszkowski wrote in his report about the possibility of a sale of Bear Stearns, making “it quite clear that an acquisition is not out of the question.” Then Cayne added some fuel to the brushfire he had started. “The world is changing, and we recognize that a synergistic combination might be in the interest of shareholders,” he told the Wall Street Journal. But since at that time the firm's book value was around $30 per share, Cayne had essentially put a price of $120 per share on the firm, $19 billion in total, far above the $46 per share the stock had been trading at.

The Dhandho Investor: The Low-Risk Value Method to High Returns
by Mohnish Pabrai
Published 17 May 2009

Wall Street assumed the company would have to declare bankruptcy when it defaulted on its debt and tanked the stock. At the time, Stewart had about $700 million in annual revenues and owned about 700 cemeteries and funeral homes in nine countries, with the bulk of them in the United States. Stewart’s tangible book value was $4 per share. It was thus trading at half of book value. Since book value included hard assets like land at cost, it was likely understated. Stewart’s earnings and operating cash flow for the six months ended April 30, 2000, was about $38 million, or about $0.36 per share. On an annualized basis, it was producing free cash flow of about $0.72 per share.

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It is another terrific indicator of distress. This list of 40 stocks routinely shows price drops of 20 percent to 70 percent over that period. The ones with the largest drops are likely the most distressed. It also has a summary every week of the stocks with the lowest price-to-earnings ratios (P/Es), widest discount to book value, highest dividend yield, and so on. Not all these businesses are distressed, but if a business is trading at a P/E of 3, it is worth a closer look. 3. There is a publication called Portfolio Reports (www.portfolioreports.com) that is published monthly. It lists the 10 most recent stock purchases by 80 of the top value managers.

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It is a wonderful web site started and managed by Joel Greenblatt of Gotham Capital. Greenblatt has perhaps the best audited record of any unleveraged investor on the planet over the past 20 years—a compounded annualized return of 40 percent. We delve more into Greenblatt and his Dhandho approach later in the book. Value Investors Club has about 250 members—each of whom had to get approved for membership by presenting a good investment idea. These members are required to post at least two ideas a year. The quality of these ideas is decent as they are peer rated. If a member presents shoddy ideas, he or she is likely to lose membership privileges.

Mastering Book-Keeping: A Complete Guide to the Principles and Practice of Business Accounting
by Peter Marshall
Published 1 Feb 1997

Using the trial balance on page 140 we will compile a balance sheet for internal use, that also meets the requirements of the Companies Act 1985 (Format 1). Compiling a company balance sheet step by step 1. Make a heading: ‘Fixed assets’. Allocate three cash columns on the right of a sheet of paper, and head them ‘Cost’, ‘Less provision for depreciation’, and ‘Net book value’. Underneath, record the values for each fixed asset. Net book value means value after depreciation. On the left write against each the name of the asset concerned. Total up each column and cross cast (cross check). 2. Make a heading: ‘Current assets’. Enter in the second column the value of stock then write against it on the left: ‘Stock’.

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They include: . the identification/serial number . description of the asset . date of acquisition . cost . how it was financed . rate of depreciation and the method for calculating this . annual depreciation for each year of its life . current net book value . date of disposal . proceeds from disposal. The reasons why it is important to keep a fixed asset register include: . It details how the fixed asset figure on the balance sheet is made up. . The business can check the presence and condition of fixed assets against their record in the register from time to time. . It shows the current net book values, so that accurate posting can be made in the ledger at the time of disposal. . It shows whether there is any finance on the assets, which is important at the time of disposal.

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They include trade creditors, and bank overdraft. 95 A. FRAZER BALANCE SHEET as at 31 December 200X Cost Less provision for depreciation Fixed assets Premises Fixtures and fittings Motor van 40,000 15,000 8,000 63,000 Current assets Stock Debtors Less provision for doubtful debts Cash at bank Cash in hand Net book value 750 1,600 2,350 40,000 14,250 6,400 60,650 9,000 10,000 2,000 8,000 10,000 50 27,050 Current liabilities Creditors Total net assets (or working capital) 12,000 15,050 75,700 Financed by Capital as at 1 January 200X Add profit for period 63,150 19,100 82,250 6,550 75,700 Less drawings Fig. 68.

The Intelligent Asset Allocator: How to Build Your Portfolio to Maximize Returns and Minimize Risk
by William J. Bernstein
Published 12 Oct 2000

All companies have a book value; this can be thought of as the net value of a company’s total assets, although the accounting reality of this number is much more complex. It is a rough number. The book value of an airline is easily understood; it is primarily the value of its planes, buildings, and office equipment, minus its liabilities. Let’s assume ABC Airlines owns assets valued at $2 billion and liabilities of $1 billion, resulting in net assets of $1 billion; let’s further assume that the value of all of its outstanding stock is $2 billion. Its P/B ratio is 2; it is selling for twice its book value. A stock with a P/B of less than 1 is said to be Odds and Ends 113 cheap; one with a P/B of more than 5 is said to be expensive, at least relative to its book value.

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A stock with a P/B of less than 1 is said to be Odds and Ends 113 cheap; one with a P/B of more than 5 is said to be expensive, at least relative to its book value. The book value of a stock is very stable; corporate accountants usually have no need to fudge this number. Finally, there is dividend yield. This is easy to understand—it is simply the amount of dividend remitted to the shareholders divided by the price of the stock. If XYZ Multimedia, Inc. sells for $100 per share, earns $5 per share and remits $3 of this to the shareholders, then the dividend yield is 3%. It is possible for a company to pay more in dividends than its earnings, but it obviously cannot do this indefinitely.

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See capital asset pricing model. Bid price: A broker’s price to buy a stock or bond. Bond: Debt issued by a corporation or governmental entity. Carries a coupon, or the amount of interest it yields. Bonds are usually of greater than one-year maturity. (Treasury securities of 1–10 years’ maturity are called notes.) Book value: A company’s assets minus intangible assets and liabilities; very roughly speaking, a company’s net assets. Capital asset pricing model (CAPM): A theory relating risk and expected return. Basically, it states that the return of a security or portfolio is equal to the risk-free rate plus a risk premium defined by Glossary 189 its beta.

Triumph of the Optimists: 101 Years of Global Investment Returns
by Elroy Dimson , Paul Marsh and Mike Staunton
Published 3 Feb 2002

In particular, we examine the returns from investing in stocks whose price is low relative to recent dividends, earnings, or book value. Since the earliest days of security analysis, experts stressed the potential benefits of buying at a price that is reasonable relative to fundamentals. The oldest yardstick is probably the price-to-dividend ratio, or its reciprocal, the dividend yield. But long ago, Graham and Dodd (1934) also urged investors to look for “a reasonable ratio of market price to average earnings,” and further advised that “the book value deserves at least a fleeting glance by the public before it buys or sells shares.” Stocks that trade at a high dividend yield (a low price-todividend ratio), or a high earnings yield (a low price-to-earnings ratio), or a high ratio of the book value of equity to the market value of equity, are often referred to as value stocks.

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However, persistent poor performance can lead to dividends, earnings, or book values that decline to zero or even (in the latter two cases) become negative. Companies that pay a dividend of zero, for example, can be more similar in their attributes to high yielding value stocks than to low yielding growth stocks; zero-yielders are also more similar to value stocks in terms of their subsequent stock market performance. To simplify computation of value-growth premia, it is common to focus on companies whose dividends, earnings, or book values are all positive before entering an index of value or growth stocks.

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Figure 10-3: Annual value-growth return premia based on entire UK market, 1956–2000 50 Value-growth return premium (% per year) 40 30 20 10 0 -10 High-low book-to-market High-low dividend yield -20 -30 1955 1960 Source: Stefan Nagel 1965 1970 1975 1980 1985 1990 1995 2000 Chapter 10 Stock returns: value versus growth 143 To produce Figure 10-3, we form mid-year portfolios, based on the ratio of the end-June share price to the book value of equity from the end of the preceding December (we omit companies with a non-positive book value). We rank stocks by their book-to-market: the highest 40 percent of companies are designated “value” stocks, while the lowest 40 percent are “growth” stocks. Performance is monitored over the following twelve months, by measuring the return premium of value relative to growth stocks.

Greed and Glory on Wall Street: The Fall of the House of Lehman
by Ken Auletta
Published 28 Sep 2015

Accepting Peter Cohen’s roughly $118 million figure for Lehman’s official net worth, this means that from March 31 to May 11 Lehman’s book value plummeted by $27 million, which represents a pre-tax loss of about $54 million—$74 million if one strictly follows the bookkeepers. To gauge the enormity of these losses using Cohen’s best-case calculations, consider: Lehman’s pre-tax profits fell from about $110 million between October 1982 and May 1983 to pre-tax losses of about $54 million in a comparable period a year later—a negative swing of about $164 million. Coupled with the exodus of partners, it means that in the ten months preceding the merger, Lehman’s book value plummeted by almost $57 million, or by about one-third.

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He remembers that in the face of “record earnings and bonuses,” Lew wanted to slash the bankers, particularly the shares and bonuses enjoyed by four senior bankers, Harvey Krueger, Peter Solomon, William Morris and Yves-André Istel. To reduce his shares, a partner sells back his stock to the firm at the current book value, which in late 1982 was about $1,250 per common share. These shares, in turn, are sold to partners designated by the board. What Glucksman wanted to do in September 1982 was to pare Krueger’s, Morris’s and Solomon’s shares from 2,500 to 2,000, the same number held by less senior partners. He wanted to drop Istel below 2,000 shares.

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Traditionally, the CEO at Lehman had the power, if there were disagreements, to make final decisions about the size of a partner’s bonus, including the size of the bonus of all seven members of the operating committee; in consultation with the board, he decided what percentage of the firm’s common shares (then showing a book value of $640.19 per share) each partner was entitled to. Dividing into subcommittees, the operating committee that summer interviewed individual partners, allowing each to make a case for how much business he had brought to Lehman that year; the full committee, after receiving the recommendations of department heads, reviewed these recommendations with the CEO, and then gave its sanction to the board.

Stock Market Wizards: Interviews With America's Top Stock Traders
by Jack D. Schwager
Published 1 Jan 2001

The third element in the selection process is the balance sheet. I will compromise on disappointing reported earnings—that's usually why the stock got blasted in the first place—but I won't compromise on the balance sheet. The debt has to be manageable relative to the cash flow. Also, in my industries of interest, book value matters. Ideally, I like to buy a stock at near, or even under book value. One of the sad things about the current stock market environment is that it is so driven by earnings expectations that balance sheets are practically ignored. Fourth, I want to see either company share repurchases or insider buying. When the senior executives are buying shares for themselves, and particularly when the company is repurchasing its stock for the treasury, it sends a strong message that the downside is often limited and provides an added safety net.

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"out of the money," 150-51, 325, 329 Merrill Lynch, 142,259 Merton, Robert, 271 Microchip Technology, 158 intrinsic value of, 329-30 market for, 224-25, 230, 231-32, 325, 327-28, Microsoft, 22, 36-38, 57, 311 models for, 131-35, 221, 227-34, 312 over-the-counter, 140 329 Milestone Scientific, 65-66 premiums on, 101, 102, 103, 140, 159, 160, 325, Minervini, Mark, 169-88 background of, 169-70 out-of-the-money calls, 150-51, 325, 329 "overfitting the data," 270 overhead, 24 N fund managed by, 170 losses of, 171, 173-76, 179-80, 182, 184, 187, 188 .327, 328, 329, 330 pricing of, 221, 226-27, 229-30, 234, 236-38, 270, 325, 327-28, 329 pairs trading, 256-57 Pfizer, 130 target, 157-58, 161-64, 177-80, 183,257 trends in, xiii, 24, 45, 85-86, 89-90, 138-39, 155-56, 158,171, 178-84, 212, 216, 254, 278-79 Prime Computer, 37-38 private market value, 44 probability curve, 221, 227-34, 236-37 products, 63, 65, 68-69 Philadelphia Stock Exchange, 225, 226, 233 profit: Playboy Club, 99-100 "point of smooth sailing," 182 Pokemon, 276-77 poker, 177, 178, 202, 225 portfolios: insurance for, 320—21 management of, 78-81, 82 risk of, 306, 322-23 theory of, 211-12 positions, trading: covering of, 85-88, 103, 106, 142-46 disclosure of, 49-50 exposure of, 59, 64, 92-93, 106, 133, 164, 269 liquidation of, 16-17, 25, 46-47, 63, 64, 70, 73, 109, 114-15, 161-62, 167, 185, 217, 219-20, 236, 279-81, 308, 309, 314, 317 long, 15, 19-20, 31, 41^12, 46, 55, 63-64, 68, 80-81, 83, 90, 92, 93, 94, 153-54, 164, 178, 197,217,269,323,324 short, 12-13, 18-19, 24, 36, 38, 40, 44-52, 63-68, 75-94, 103, 108, 112, 149-54, 164, 204, 209, 216-17, 269, 276-81, 285, 293, 306, 315, 321-25 President's Committee of Advisors on Science and Technology, 259 "price action sandwich," 179 price/earnings ratio, 21, 22, 43-44, 52, 58, 59, 60, 62, 65,66, 72-73,79, 81, 89,92,94, 149, 152, 154-55, 158, 164, 165, 166-67, 172,216,306, 320,321,325 prices, stock: aggregate, 248 book value vs., 44 margin of, 45, 154-55, 165, 229, 299 target, 308 proprietary structures, 243 Psychology of Mastering the Markets, The (Kiev), 288 Quantech Fund, LP, 170 Quantech Research Group, 170 Quantum fund, 222 quarterly earnings report, 40, 60, 62-63, 84, 138-39, 141,215-17,286-87 Ranieri, Lewis, 249 ratios: capitalization/revenue, 36-37, 45, 52 debt/cash flow, 43 price/book value, 44 price/cash flow, 44 price/earnings, 21, 22, 43-44, 52, 58, 59, 60, 62, 65, 66, 72-73, 79, 81, 89, 92, 94, 149, 152, 154-55, 158, 164, 165, 166-67, 172, 216, 306, 320,321,325 price/sales, 44 return/risk, 70-71, 76, 125, 127, 128-29, 132, 134-35, 166, 207, 222, 237, 249-50, 255, 265, 269, 299, 323, 326 Rattner, Steve, 142-43 RCA, 229 real estate, 64 receivables, 91-92, 94, 324 INDEX Reindeer Capital, 1-3 religion, 208 replacement value, 248 research: brokerage, 55-56, 61-62 computer, 77, 81, 129-30, 157-58, 181, 194-95, 197, 202-3, 204, 208, 215, 255, 274, 319 consumer, 67-69 hypotheses in, 256, 265, 270, 274, 319 necessity of, xiii, 50, 59-60, 65-66, 100, 154-55, 160, 166, 189-90 reliability of, 25-26, 4 1 , 4 5 , 55-56, 165, 176-77, Schwartz, Eddie, 98-99 Securities and Exchange Commission (SEC), 39, 72, 80,89,235,251 prices of, sag prices, stuck Seinfeld, 276 Shaw, David, 254-74 relative linearity ol, 15 repurchase of, 1 7, 43, 45, 5 1, 162 response of, 15-16, 18,26,40-41,47-48,81, 235-36, 318 background of, 258—63 fund managed by, 254, 255. 257-58, 259, 272, 273, 304 profits of, 254, 255 strategy of, 19, 254-74, 301, 303, 304, 306, 320 Shearson Lehman Brothers, 191-92 sell-side, 61-62, 64, 65-66, 72, 73, 143 "sheet monkeys," 233 shopping malls, 67—68 short selling; see positions, trading, short technical, 190, 193, 194-95, 202-3, 206, 228-29, slippage, 203 185, 187,231,326 254-74, 320 Social Psychiatry Research Institute, 288 research and development (R£D), 89 Resolution Trust Corporation (RTC), 249-50 restructuring, 45-46 software, computer, 26, 86-88, 90, 139, 215 revenue, 65, 90, 92, 139 stockbrokers, 20-21, 56, 100, 207, 212-14 capitalization vs., 36-37, 45, 52 reverse franchising, 242 risk: exposure to, 59, 64, 92-93, 106, 1.33, 164, 269 of index funds, 34-37, 50, 53 "just-say-no," 244-45 management of, xiii, 30, 33, 54-55, 59, 63, 71-72, sec also sales, brokerage stock market: anomalies of, 254, 265-69 speculation, 20, 84-85, 177, 225-26 statistical arbitrage, 255—56 bull, 64, 75-76, 88, 92, 108, 162, 165, 183, 237, 255,284 corrections in, 16, 232 as efficient, 42, 50-51, 131-33, 147, 1 6 1 , 2 1 7 , 264, 265-69, 270, 320,328 environment of, 25, 29, 33, 38, 41, 47-48, 176, profit vs., 70-71, 76, 125, 127, 128-29, 132, 134-35, 166, 207, 222, 237, 249-50, 255, 265, forecasts of, 196, 269, 310-11 indexes of, 30, 31, 34-36, i 40; see also specific indexes 269, 299, 323, 326 S.A.C., 275, 288, 290-93 sales, brokerage: cold-calling for, 12, 56, 212-13 pitch for, 20-21, 48, 56, 59, 190-91, 212 sales, company, 44, 90 Salomon Brothers, 246-48, 249 Sambo's restaurants, 100, 101 Sanchez Computer Associates, 86-88 S&P500, 30, 31,34, 35-36, 52, 110-11, 113, 144-45, 149, 162-63, 196, 200, 235, 285 Scholcs, Myron, 271 Schrodinger, Inc., 259 Schwab, 149-52, 164 Schwager, Jo Ann, xi-xii privately held. 84-85 quality, 20, 1 1 1 restricted, 250-52 screening of, 42-46, 51-52, 59-63, 72-74, 89-94, 166-68, 171, 172-73, 187 technology, 64, 90-91, 92, 118, 1 5 1 , 162, 186, 229-30,249,269,310-11 tips on, 6, 13-14,20,25,72, 173, 176, 312 valuation of, 17, 45, 46-47, 58, 64, 67, 81, 83, 85-86,89-91, 152, 157, 160, 162-63,229-30, 256-57, 306-7, 322 volatility of, 102, 108, 115, 153, 197,330 stop-loss points. 162-63, 217, 220, 231, 232, 305, 308 Strategy for Daily Living, A (Kiev), 289 Sjrperper/ormtiMce Sfocfa (Love), !

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It is interesting how rational money managers become in a bear market. Only then do they begin to question the underlying valuations. Okay, continue with your list of stock selection factors. The fifth screen is value. The value has to be extremely compelling. How do you measure value? We use some conventional measures, such as price to sales, cash flow, book value, but not necessarily price to earnings because, as I pointed out before, the company could actually be losing money on a reported basis. The most important measure of value, however, which I admit is somewhat subjective, is price to intrinsic, or private market, value. What do you mean by private market value?

How to Own the World: A Plain English Guide to Thinking Globally and Investing Wisely
by Andrew Craig
Published 6 Sep 2015

In this example, imagine they both make the same profit this year and are very likely to make the same profit next year. BOOK VALUE The book value is simply the value of all the assets a business owns, as added up by their accountants, and it is yet another way we can compare the value of one share to another. Imagine a company has lots of property and lots of cash in the bank. If you own a share in that company, you effectively own a share in those assets – as well as a share of any profits. The book value can be divided by the number of shares to give an idea of the value of existing assets that each share is entitled to.

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Before we move on, I want to make one final point about shares, which is that all of the above metrics can be applied to the stock market as a whole. This means that at any given time we can consider the P/E ratio, book value or dividend yield of the entire stock market and compare it to other stock markets (e.g. compare the UK to the US or Japan) or to the same market in other points in history. If we know that the P/E ratio or book value of a market is historically low, we have a much higher chance of making a great return on our money in the next few years than we would if those ratios were historically high. Obviously, things are more complicated in the real world than in our examples.

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In chapter 7 we looked briefly at earnings yield, dividend yield and book value. Once you have chosen a theme and made a list of companies you might consider to give you exposure to that theme, the next piece of the jigsaw puzzle is to find out these numbers based on the company’s current share price. These are all reasonably simple things to understand and are freely available on websites such as Yahoo or Google Finance – or from your stockbroker’s website. For each company, you should find the current year’s P/E, PEG, dividend yield and price-to-book ratio (i.e. book value per share). Where possible, you should also find out these numbers for next year.

Personal Investing: The Missing Manual
by Bonnie Biafore , Amy E. Buttell and Carol Fabbri
Published 24 May 2010

The PEG ratio doesn’t work well for industries valued on their assets, such as financial institutions, real estate operations, and airlines. If you’re looking at companies like these, use the price/book value ratio instead. • The price/book value ratio (also known as the price/book ratio) was made popular by Benjamin Graham after the 1929 stock market crash. The price/book ratio is the foundation of value investing, investing in companies that represent good value. Book value is another name for shareholders’ equity (page 108). You use book value per share (shareholders’ equity divided by the number of shares outstanding) to calculate the price/book value ratio, which helps you determine a stock’s value. A price/book ratio of less than 1.0 means the share price is less than the book value for one share, which means you can purchase the company for less than its net worth.

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A price/book ratio of less than 1.0 means the share price is less than the book value for one share, which means you can purchase the company for less than its net worth. The price/book value ratio can help you find good investment deals, because accounting practices are conservative about depreciating assets on a company’s books, like real estate. For example, a company may own buildings that are worth millions, but if those buildings are fully depreciated, they have a value of $0 on the company books. If that’s the case, you could purchase the company for less than the company’s assets are worth. If you sold the assets, you’d make an immediate profit.

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See long-term care (LTC) O open enrollment, for health insurance, 215 operating income, 106 operating net income per share, for REITs, 147 opinions, basing on last information heard, 49 P parents, caring for, 24, 34–35 payroll deduction IRA, 187 PEG (P/E to growth ratio), 123 pension plans, 29–30 P/E (price/earnings) ratio for a company, 120–122 P/E to growth ratio (PEG), 123 planning. See goals PLUS loans, 211 Point-of-Service plan, 214 portfolio review, 168 power players (type of investor), 46, 51–52 PPO (preferred provider organization), 214 pre-tax profit margin of a company, 119 price/book value ratio, 123 price/cash flow ratio, 124 price/earnings (P/E) ratio for a company, 120–122 price of bonds, 59, 136–137, 139 price ratios for a company, 120–124 price/sales ratio (PSR), 124 Principal Financial Group’s Eligibility and Contributions tool, 218 principal of bonds, 58, 129 profitability of a company, 118–120 profit, gross, 106 Index 233 profit margin for a company, 118 prospectus for bonds, 132 for funds, 77, 82, 89, 92 protectors (type of investor), 46, 46–48 PSR (price/sales ratio), 124 psychological pitfalls in investing, 45–52 Q quality of company, evaluating, 111–120 quick ratio of a company, 115 R rational price of a stock, 122 real estate investment trusts (REITs), 61–62, 141–143 cash reinvested by, 145 choosing, 144–152 depreciation affecting, 147 dividends from, 62, 142–143, 145, 148 profits of, 146 screening, 149–152 tax issues regarding, 63, 69, 142 types of, 143–144 receivables turnover ratio, 118 redemption fees, 91 red zone, 189–191 reinvesting dividends, 158 reinvestment risk, 159 REIT ETFs, 62 REIT mutual funds, 62, 150–152 REITs.

100 Baggers: Stocks That Return 100-To-1 and How to Find Them
by Christopher W Mayer
Published 21 May 2018

I’ll just add some basic math about the importance of earning a high return on capital and—you can’t forget this second part—the ability to reinvest at high rates for years on end. Phelps walks through an example in his book that is worth repeating here. Assume a company has $10 per share in book value and earns 15 percent on that capital. At the end of one year, book value will be $11.50 per share, if the stock pays no dividend. At the end of the second year, it will be $13.22, and at the end of the third year $15.20. “In five years, the company’s book value will have doubled,” Phelps writes. “In 10 years, it will have quadrupled. In 33 years, it will be up one hundredfold.” If the company had paid dividends, the story would be quite different.

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In the 1981 letter, he wrote about how inflation made Berkshire’s “apparently satisfactory results . . . illusory as a measure of true investment results for our owners.” In the 1979 letter he wrote this: One friendly but sharp-eyed commentator on Berkshire has pointed out that our book value at the end of 1964 would have bought about one-half ounce of gold and, fifteen years later, after we have plowed back all earnings along with much blood, sweat and tears, the book value produced will buy about the same half ounce. 150 100-BAGGERS A similar comparison could be drawn with Middle Eastern oil. The rub has been that government has been exceptionally able in printing money and creating promises, but is unable to print gold or create oil.

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These are mostly Canadian companies, as Donville focuses on Canada. His picks for 2014, in the January letter, included Home Capital. THE KEY TO 100-BAGGERS 77 I share the Donville story to make a couple of points. First, it’s important to think about what a company can earn on the money it invests. When a company can build book value per share over time at a high clip, that means it has the power to invest at high rates of return. The second point I want to make is how time is your friend when you own such stocks. In just 16 years, Home Capital multiplied its investors’ wealth 49-fold. You could only get that return by holding onto the stock through thick and thin.

SQL Hacks
by Andrew Cumming and Gordon Russell
Published 28 Nov 2006

People phone one of two possible operators (called X and Y) to check seat availability and make bookings: CREATE TABLE seat ( chairid INT, updateid INT, booked varchar(20) ) ENGINE=InnoDB; INSERT INTO seat (chairid,updateid,booked) VALUES (1,1,NULL); INSERT INTO seat (chairid,updateid,booked) VALUES (2,1,NULL); INSERT INTO seat (chairid,updateid,booked) VALUES (3,1,NULL); INSERT INTO seat (chairid,updateid,booked) VALUES (4,1,NULL); INSERT INTO seat (chairid,updateid,booked) VALUES (5,1,NULL); INSERT INTO seat (chairid,updateid,booked) VALUES (6,1,NULL); You need to specify ENGINE=InnoDB only if you are using MySQL and InnoDB is not the default; delete this phrase (but keep the semicolon) on all other platforms.

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Consider a booking system for a small theatre. The theatre has four seatstwo at the front and two at the back: CREATE TABLE seat ( chairid INT, location varchar(20), booked varchar(20)) ENGINE=InnoDB; INSERT INTO seat (chairid,location,booked) VALUES (1,'front',NULL); INSERT INTO seat (chairid,location,booked) VALUES (2,'front',NULL); INSERT INTO seat (chairid,location,booked) VALUES (3,'back',NULL); INSERT INTO seat (chairid,location,booked) VALUES (4,'back',NULL); You need to specify ENGINE=InnoDB only if you are using MySQL and InnoDB is not the default; delete this phrase (but keep the semicolon) on all other platforms. Be sure to run SHOW WARNINGS after you issue the CREATE TABLE statement.

Investment Banking: Valuation, Leveraged Buyouts, and Mergers and Acquisitions
by Joshua Rosenbaum , Joshua Pearl and Joseph R. Perella
Published 18 May 2009

EXHIBIT 5.18 Cash on Hand Uses of Funds Links Purchase ValueCo Equity As shown in Exhibit 5.19, ValueCo’s existing shareholders’ equity of $700 million, which is included in the $825 million purchase price, was eliminated as a negative adjustment and replaced by the sponsor’s equity contribution (less other fees and expenses). EXHIBIT 5.19 Purchase ValueCo Equity Goodwill Created Goodwill is created from the excess amount paid for a target over its existing book value. For the ValueCo LBO, it is calculated as the equity purchase price of $825 million less book value of $700 million. As shown in Exhibit 5.20, the net value of $125 million is added to the existing goodwill of $175 million, summing to total pro forma goodwill of $300 million.178 The goodwill created remains on the balance sheet (unamortized) over the life of the investment, but is tested annually for impairment.

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A marginal tax rate of 35% to 40% is generally assumed for modeling purposes, but the company’s actual tax rate (effective tax rate) in previous years can also serve as a reference point.79 Depreciation & Amortization Projections Depreciation is a non-cash expense that approximates the reduction of the book value of a company’s long-term fixed assets or property, plant, and equipment (PP&E) over an estimated useful life and reduces reported earnings. Amortization, like depreciation, is a non-cash expense that reduces the value of a company’s definite life intangible assets and also reduces reported earnings.80 Some companies report D&A together as a separate line item on their income statement, but these expenses are more commonly included in COGS (especially for manufacturers of goods) and, to a lesser extent, SG&A.

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Step III(c): Link Sources and Uses to Balance Sheet Adjustments Columns Once the sources and uses of funds are entered into the model, each amount is linked to the appropriate cell in the adjustments columns adjacent to the opening balance sheet (see Exhibit 5.15). Any goodwill that is created, however, needs to be calculated on the basis of equity purchase price and existing book value of equity (see Exhibit 5.20). The equity contribution must also be adjusted to account for any transaction-related fees and expenses (other than financing fees) that are expensed upfront.177 These adjustments serve to bridge the opening balance sheet to the pro forma closing balance sheet, which forms the basis for projecting the target’s balance sheet throughout the projection period.

The Best Way to Rob a Bank Is to Own One: How Corporate Executives and Politicians Looted the S&L Industry
by William K. Black
Published 31 Mar 2005

We buy an S&L that has $200 million (book value) in mortgages that the S&L lent in 1977 at an 8 percent interest rate. On a market-value basis, however, they are only worth $160 million because the market interest rate for a comparable mortgage is now 16 percent. The key is that we create a new book value when we acquire these mortgages through the merger. Their book value becomes $160 million. The $205 million in liabilities at the S&L we are buying are very short-term deposits. Short-term deposits do not change materially in value when interest rates change, so their book value is unchanged by the merger accounting.

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Again, we assume that market interest rates for comparable mortgages are 16 percent at the time of the merger and fall one year later to 12 percent. One could sell only the acquired mortgages for a gain because only they got a new (lower) book value through the mark-to-market. The buyer’s mortgages have market, but not book, values identical to those of the mortgages acquired through the merger. The book value of the buyer’s mortgages is still $200 million. If we sell them one year after the merger for their market price of $180 million, we have to book a $20 million loss under GAAP. The S&L league seriously proposed that the entire industry mark its assets to market and create $150 billion in goodwill so that S&Ls could engage in gains trading without finding a merger partner.

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The other implication is that the acquirer knows that the profit is fictitious and that failure is certain, which maximizes the perverse incentives to engage in reactive control fraud. Second, the Internal Revenue Service (IRS) treats this transaction for tax purposes as a loss. The IRS says that if one started with assets that had a book value of $200 million and sold them for $180 million, there is a $20 million loss for tax purposes that can be used to offset tax liability on GAAP profits. This is the second way in which goodwill mergers increased net income.6 Third, one could maximize this fictitious income only through a merger.

Mastering Spreadsheet Bookkeeping
by Peter Marshall
Published 16 Apr 2014

Methods of calculating depreciation • Straight line method • Diminishing (or reducing) balance method • Sum of the digits method • Machine hours method • Revaluation method • Depletion method • Sinking fund method • Sinking fund with endowment method Even this list is not exhaustive, but the first two are the most common. Straight line method This involves deducting a fixed percentage of the asset’s initial book value, minus the estimated residual value, each year. The estimated residual value means the value at the end of its useful life within the business (which may be scrap value). The percentage deducted each year is usually 20 per cent or 33.33 per cent and reflects the estimated annual fall in the asset’s value.

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Column 22 is for recording any expenses, allowable against tax, that do not fall into the other categories. Column 23 is for recording any expenses that are not allowable against tax, e.g. expenses which cannot be proved because the documentation has been lost. Column 24 is for recording the net book value of fixed assets that have been disposed of. These are outgoings because they reduce the total assets of the business. Column 25 is for recording the values of fixed assets purchased in the current year. Column 26 is for recording new material depreciation on fixed assets. Column 27 is for recording adjustments to stock values, e.g. opening and closing stock.

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Now we need to make some links: Now there are four formulae to put in: The final thing to do in order to complete this report is to highlight cells C8, C11 and C14 by holding down the control key while clicking into each cell and then insert a bottom border by clicking on the borders icon in the fonts group on the ribbon and selecting the bottom border option. Now click on cell C18 and insert both top and bottom borders into that cell by selecting the top and bottom border option. Now we need to deal with asset disposals: if fixed assets have been disposed of their net book value will have to be removed from the fixed assets account and any profit or loss entered into the profit and loss account. The first thing you have to do is configure two more columns on the assets worksheet. Proceed as follows: Cell reference What to type in E 4 Summary of fixed asset disposals E 6 NVB of disposals Q1 E 7 Sale proceeds Q1 E 8 Profit or loss Q1 E 9 NBV of disposals Q2 E 10 Sale proceeds Q2 E 11 Profit or loss Q2 E 12 NVB of disposals Q3 E 13 Sale proceeds Q3 E 14 Profit or loss Q3 E 15 NVB of disposals Q4 E 16 Sale proceeds Q4 E 17 Profit or loss Q4 Embolden and underline the contents of cell E4, by clicking on the bold and underline icons in the fonts group on the ribbon, because it is the title of the sheet.

Buy Then Build: How Acquisition Entrepreneurs Outsmart the Startup Game
by Walker Deibel
Published 19 Oct 2018

The most common ways to value a company are asset based and cash flow based. It’s important to understand them, even if they’re not applicable, so that you can begin to understand how others apply or calculate approximate value. 149 ASSET-BASED VALUATION There are three main asset-based valuations: book value (BV), fair market value (FMV), and liquidation value (LV). BOOK VALUE Book value we discussed earlier while reviewing the balance sheet. It’s the net worth of the company as reported by its financial statement under owner’s equity. It applies the value of the assets currently on the books, then subtracts the liabilities. This can be an interesting academic understanding, but in my experience, it’s not at all accurate.

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However, the government classifies any company vehicle under 6,000 pounds in weight as a “luxury” automobile and applies restrictions to the rate of depreciation. This essentially ensures any book value would not match what the installation truck could be sold for on the open market. Ever try to sell a three-year-old computer? How about a short-run perfect binding machine without an in-line cutter? We’ve discussed that the assets are only as good as their ability to produce earnings, and this is the second reason book value doesn’t apply for you. As a buyer, what you are really interested in is the cash flow that is generated by the business. The infrastructure is simply the existing vehicle that creates those earnings.

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A turnaround describes the acquisition of a company that has fallen on hard times, with the goal of improving operations, building efficiencies, and strengthening the value that the company provides to its customers. It’s the company version of the “fixer-upper.” Often, however, the best opportunities are with companies in pretty bad shape, even bankrupt. Typically, a turnaround opportunity is not valued on positive earnings because they’re usually not producing positive earnings. Instead, book value, liquidation value, or some similar metric applies a discount into the more typical, positive-earnings-multiplied formula. I have seen deals where taking over the debt for the opportunity to turn the company around is a horrible idea because they owe too much, and I have also seen where the debt is comfortable under the liquidation value.

Buffett
by Roger Lowenstein
Published 24 Jul 2013

What the “numbers” told Buffett was that California chocoholics were willing to pay a premium price for the See’s well-regarded brand. But the price for the company was $30 million. Buffett and Munger were dissuaded by the paltry level of the See’s book value, and would go no higher than $25 million.4 There the talks ended. In this case, Buffett had made a common mistake. Investors often assume that book value approximates, or at least is suggestive of, what a company is “worth.” In fact, the two express quite different concepts. Book value is equal to the capital that has gone into a business, plus whatever profits have been retained. An investor is concerned with how much can be taken out in the future; that is what determines a company’s “worth” (or its “intrinsic value,” as Buffett would say).

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An investor is concerned with how much can be taken out in the future; that is what determines a company’s “worth” (or its “intrinsic value,” as Buffett would say). Suppose, for a moment, that a new company invested in candy-making equipment, stores, and inventory identical to those of See’s. Its book value would be the same, but the name on its candy box would be unknown. And this upstart, having far less earning power, would be worth far less. Since book value is blind to intangibles such as brand name, for a company such as See’s it is meaningless as an indicator of value. But Buffett and Munger got lucky. See’s rang back and took the $25 million—Buffett’s biggest investment by far.

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In an inflationary era, this was no less suicidal than agreeing to set a price on Hathaway yarn for the year 2010. Alas, understanding inflation did not provide immunity to it. Buffett pointed out, with no little agony, that when he had taken over Berkshire the book value of one share could have bought one half-ounce of gold and that, after fifteen years in which he had managed to raise the book value from $19.46 a share to $335.85, it would still buy the same half-ounce.33 The best that he could do was to invest in companies that might resist inflation’s ravages, such as General Foods and R. J. Reynolds Industries. Buffett figured that well-known consumer brands, such as Post cereals and Winston cigarettes, would be able to raise prices at a pace with inflation.

The Asian Financial Crisis 1995–98: Birth of the Age of Debt
by Russell Napier
Published 19 Jul 2021

As things stand at the minute, it looks as if the good bankers will be forced to buy the bad banks with negative net worth. There will be an instantaneous decline in a book value which is already shrinking rapidly. Perhaps as the process continues, this dilution of bank capital will be seen as unpalatable – but what is the alternative? This is not to say that bank and finance counters in Thailand will never be a buy. However, given the surge in share prices and the current premium-to-book values, the market is not accounting for the risks associated with mass bankruptcy in the sector and the need for the good capital to be used to bail out the bad.

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To buy equities in the distressed jurisdictions you are betting that the indigenous corporation will arise victorious despite the crushing pressures of the cycle, the alteration in habitat and the introduction of the new predator. Indeed you are backing the indigenous corporation at odds on. With these companies trading at average 50% premiums to book value, you are making a long-term bet that they will produce above-par returns in this new environment! If you don’t believe in their ability to thrive in this new environment, then dig a hole in the ground, build your own capacity at a book value of one and do it yourself. Even if your business venture fails, you will not have paid a premium for the privilege of extinction. Somewhere out there is a new genus of corporation which may be populated with creatures such as Guinness Philippines, GE Indonesia and Unilever Thailand.

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It is crucial that such mistakes have been avoided, otherwise 3× book is an expensive price to pay for the Kuala Lumpur Composite Index just as we enter an economic slowdown! If the net assets of a company are worth US$100 and the share price trades at US$300, the company is said to be valued at 3× book value. To pay such a premium for corporate capital assumes an ability among management to achieve returns well in excess of the returns any investor can achieve by putting their capital in a relatively risk-free investment such as a bank account. The premium is paid while recognising the risks that management may also fall short of producing such returns, while the depositor can often lock in a fixed yield for some years to come.

A Man for All Markets
by Edward O. Thorp
Published 15 Nov 2016

Here’s how it is done. Imagine a hypothetical mutual savings and loan, which we’ll call Magic Wand S&L, or MW, with $10 million in liquidation or book value, and net income of $1 million per year. If MW were a stock bank with one million shares outstanding, each share would have a book value of $10 and earn $1 per share, which is 10 percent of book value. Suppose that if there were such a thing as MW stock, it would, as is typical, trade at one times book value, or $10 per share. Management decides to “convert” MW to a stock savings and loan and issue for the first time one million shares of stock at $10 per share, for proceeds of $10 million.

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It opens at $12 and over the next few weeks slowly moves up to $16, still below the $20 per share paid for comparable stocks that have traded for a while in the market. It doesn’t quite make it to $20. Why not? First, the net cash to Magic Wand is a little less than $10 per share because the underwriters get a few percent of the proceeds, so the new book value is a little less than $20, perhaps $19.30 per share. Second, the market price of S&Ls fluctuates and the group has been a little weak lately. The price has dropped a couple of points below book value. Third, it will take management time to put the new cash to work, so earnings won’t reach $2 per share for a year or two. Even so, we made 60 percent in a few weeks. Many of the players in this game, so-called flippers, take their profit in the first few days and move on.

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Daily historical prices of stocks, the dates and amounts of any cash dividends paid, and other data were marketed by CRSP, the University of Chicago’s Center for Research in Security Prices. The Compustat database provided historical balance sheet and income information. Of the scores of indicators we systematically analyzed, several correlated strongly with past performance. Among them were earnings yield (annual earnings divided by price), dividend yield, book value divided by price, momentum, short interest (the number of shares of a company currently sold short), earnings surprise (an earnings announcement that is significantly and unexpectedly different from the analysts’ consensus), purchases and sales by company officers, directors, and large shareholders, and the ratio of total company sales to the market price of the company.

The Oil Factor: Protect Yourself-and Profit-from the Coming Energy Crisis
by Stephen Leeb and Donna Leeb
Published 12 Feb 2004

We think a lot more than it was trading for in early 2003. Over the long haul virtually every metric associated with Berkshire, ranging from book value to share price, has outpaced the S&P 500 by a factor of two or more. Even more remarkable is the consistency of this performance. Only once between 1965 and 2003 did Berkshire’s book value decline. During the total of five years in which stocks suffered double-digit losses, including the terrible bear markets of the early 1970s and more recently the early 2000s, Berkshire’s book value increased in all but one year and had a total compounded gain during those five miserable years of more than 35 percent.

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Until that merger in 1998, you’d have to say that Berkshire’s main asset was the genius of its head, Warren Buffett, who, disdainful of investing trends and conventional wisdom, demonstrated a preternatural ability to pick stocks and businesses that blossomed into major winners. Buffett bought Berkshire Hathaway in 1965 and turned it into a vehicle for buying shares in public companies as well as for gaining ownership of a number of privately owned businesses. Since then, the company’s book value has grown from $19 a share to more than $41,000. That works out to a remarkable annual compounded gain of 22.2 percent, compared to 10 percent for the S&P 500. Prior to 1998 you more or less could have duplicated Buffett’s performance simply by buying the stocks that Berkshire was accumulating.

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During the total of five years in which stocks suffered double-digit losses, including the terrible bear markets of the early 1970s and more recently the early 2000s, Berkshire’s book value increased in all but one year and had a total compounded gain during those five miserable years of more than 35 percent. This compares to losses in the S&P 500 of 72 percent. Clearly, Berkshire is worth a tremendous premium to the market both for its exceptional growth prospects and its record of protecting investors when times are bad. Yet in terms of most metrics, such as earnings, book value, and cash flow, the stock trades at a discount or at no premium. One quick note: as you probably know, Berkshire has two classes of stocks, A shares and B shares. The A shares are priced thirty times higher and investors in them have voting rights, but there is no difference in terms of core value. So it’s your choice.

The Little Book That Still Beats the Market
by Joel Greenblatt
Published 2 Jan 2010

But I guess this is just another place where the magic formula is being uncooperative. Most people would expect value stocks (mainly because they are already considered cheap when purchased) to hold up much better in down markets and perhaps underperform a bit in up markets. This is probably true for stocks selling at low multiples of price-to-book value or price-to-sales. However, it’s pretty clear that this has not been the case for the magic formula over the last 22 years. I can only speculate that since the magic formula is heavily earnings based, during down markets investors sense less protection from a company’s high recent earnings than from high levels of assets or sales.

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First, much of the available historical stock market data from outside the United States is seriously flawed, and backtest results would not be reliable. It is helpful to know, however, that most historical studies over the last several decades involving classic (and less problematic to test) value characteristics, such as low price to earnings, low price to book value, and low price to sales have proved equally effective in both the United States and international markets. But second, and perhaps more important, we are very confident that the principles behind the magic formula are universal. Buying above-average companies at below-average prices makes sense in all markets.

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Simple methods for beating the market have been well known for quite some time. Many studies over the years have confirmed that value-oriented strategies beat the market over longer time horizons. Several different measures of value have been shown to work. These strategies include, but are not limited to, selecting stocks based upon low ratios of price to book value, price to earnings, price to cash flow, price to sales, and/or price to dividends. Similar to the results found in the magic formula study, these simple value strategies do not always work. However, measured over longer periods, they do. Though these strategies have been well documented over many years, most individual and professional investors do not have the patience to use them.

Andrew Carnegie
by David Nasaw
Published 15 Nov 2007

He does not like his own medicine.”13 Phipps had designed the “ironclad” arrangement in the winter of 1886–87 during Carnegie’s convalescence from his near-fatal illness. To enable the firm to buy back the shares of deceased members without bankrupting itself, Phipps had set the “book value” of the company’s stock below the market value and stipulated that the firm had to pay only this “book value.” The “ironclad”—so named because it was considered unbreakable—further stipulated that at any time, for any reason, an individual partner could be expelled from the firm and required to sell back his shares at “book value,” if a combination of three quarters of the partners, holding three quarters of the total stock, requested him to do so. It is not exactly clear what Phipps’s objections were to the “ironclad,” but he may well have feared giving his partners the right to expel him from the firm at some later date.

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Having no stock to sell, or anything like that, to the public, and no credit to keep up in the public eye, they prided themselves on going to the other extreme.”24 Phipps’s “ironclad” agreement not only provided that a deceased partner’s stock could be bought back at the discounted “book value,” but gave the remaining partners plenty of time to do so—a full fifteen years in the case of Carnegie’s 50 percent share of the company. There was a second part to the agreement. Phipps proposed that at any time in the future, for any cause whatsoever or no cause at all, three quarters of the stockholders, if they held among them three quarters of the stock, could force any of the partners to leave the company and sell back his interest at “book value.” Since Carnegie held 50 percent of the stock, no ejection could take place unless he agreed to it.

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Carnegie Steel stock was not to be traded for; the partners had signed the ironclad agreement precisely to prevent such deals. When a partner was ready to leave the company, he had no choice but to sell his stock back to the company—at book value. “Don’t try to negotiate with H.P. for his interest because he won’t negotiate…. Bargains from poor men carry noblessing—‘The Books’ has been our rule why should it be changed? The firm can buy any of his shares with my approval at the Books.” Not yet finished berating his junior partner, Carnegie went on to criticize him for not adjusting the book value of the Keystone Bridge properties, as Phipps, fearing his shares were undervalued, had begged him to do. “You promised him to fix it….

The Snowball: Warren Buffett and the Business of Life
by Alice Schroeder
Published 1 Sep 2008

Buffett measures his performance not by the company’s stock price, which he didn’t control, but by increase in net worth per share, which he did. There is a link between these two measures over long periods of time. In 1999, book value per share had grown only ½ of 1%. But for the acquisition of General Re, book value per share would have shrunk. Meanwhile, the stock market as a whole was up 21%. Buffett called it a fluke that book value had increased at all, pointing out that in some years it will inevitably decrease. Yet only 4 times in 35 years under Buffett, and not once since 1980, had Berkshire done worse than the market by this measure. 19.

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Dempster Mill Manufacturing, a family-run company in the worst sense of the word, made windmills and water irrigation systems in Beatrice,*21 Nebraska. This episode of Buffett’s career had started like putting a quarter in yet another slot machine to get a dollar back—or so it seemed. The stock sold for $18 a share and the company had a steadily growing book value of $72 a share. (“Book value” is the stated value of a company’s assets less what it owes—like a house less the mortgage, or cash in the bank less a credit card balance.) In the case of Dempster, the assets were windmills, irrigation equipment, and its own manufacturing plant. In 1958, Warren had driven out to Beatrice, a windswept prairie town that depended on Dempster as its sole important employer.

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Buffett bought the house in 1958. 39. Evelyn Simpson, “Looking Back: Swivel Neck Needed for Focus Change Today,” Omaha World-Herald, October 5, 1969. Chapter 34 1. Carol Loomis, “Hard Times Come to the Hedge Funds,” Fortune, January 1970, the first of a series of Loomis articles that showcase Buffett’s opinions. 2. Book value. Tangible book value was $43. Warren Buffett letter to partners, October 9, 1969. 3. Ibid. 4. The more inquisitive partners may have discovered that Berkshire Hathaway owned Sun Newspapers by reading its 1968 annual report. 5. Letter to partners, October 9, 1969. Buffett explained that he expected stocks to yield about 6½% after tax for the next ten years, roughly the same as a “purely passive investment in tax-free bonds.”

Capital in the Twenty-First Century
by Thomas Piketty
Published 10 Mar 2014

For companies not so listed, either because they are too small or because they choose not to finance themselves via the stock market (perhaps in order to preserve family ownership, which can happen even in very large firms), the market value is calculated for national accounting purposes with reference to observed stock prices for listed firms as similar as possible (in terms of size, sector of activity, and so on) to the unlisted firm, while taking into account the “liquidity” of the relevant market.21 Thus far I have used market values to measure stocks of private wealth and national wealth. The accounting value of a firm, also called book value or net assets or own capital, is equal to the accumulated value of all assets—buildings, infrastructure, machinery, patents, majority or minority stakes in subsidiaries and other firms, vault cash, and so on—included in the firm’s balance sheet, less the total of all outstanding debt. FIGURE 5.6. Market value and book value of corporations Tobin’s Q (i.e. the ratio between market value and book value of corporations) has risen in rich countries since the 1970s–1980s. Sources and series: see piketty.pse.ens.fr/capital21c.

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The same will be true if the firm earns 50 million in profits and decides to create a reserve to finance new investments worth 50 million: the stock price will rise by the same amount (because everyone knows that the firm has new assets), so that both the market value and the book value will increase to 150 million. The difficulty arises from the fact that anticipating the future of the firm quickly becomes more complex and uncertain. After a certain time, for example, no one is really sure whether the investment of 50 million euros several years earlier is really economically useful to the firm. The book value may then diverge from the market value. The firm will continue to list investments—in new offices, machinery, infrastructure, patents, and so on—on its balance sheet at their market value, so the book value of the firm remains unchanged.22 The market value of the firm, that is, its stock market capitalization, may be significantly lower or higher, depending on whether financial markets have suddenly become more optimistic or pessimistic about the firm’s ability to use its investments to generate new business and profits.

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Sources and series: see piketty.pse.ens.fr/capital21c. In theory, in the absence of all uncertainty, the market value and book value of a firm should be the same, and the ratio of the two should therefore be equal to 1 (or 100 percent). This is normally the case when a company is created. If the shareholders subscribe to 100 million euros worth of shares, which the firm uses to buy offices and equipment worth 100 million euros, then the market value and book value will both be equal to 100 million euros. The same is true if the firm borrows 50 million euros to buy new machinery worth 50 million euros: the net asset value will still be 100 million euros (150 million in assets minus 50 million in debt), as will the stock market capitalization.

Dead Companies Walking
by Scott Fearon
Published 10 Nov 2014

He’d figured out that if you walked like Carl Lewis ran, you could make every green light heading uptown. But when it came to picking stocks, Geoff was never in a hurry. He was very deliberate. And he believed in something extremely unusual in those days—actual research. More than anything—more than projections and book values and price-to-earnings ratios—Geoff believed human-to-human contact was the best way to gauge a company’s future performance. He valued numbers and raw data, but he knew that numbers were easy to fudge or misread. You had to study the people behind the numbers to get the full story. And reading secondhand profiles about a company’s executives didn’t count.

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Ten years before I came to Houston, it also got into a funny side business when its former owner, Howard Hughes, built a giant ship named the Glomar Explorer and leased it to the CIA to help salvage a wrecked Soviet submarine out in the middle of the Pacific Ocean. Like just about every other energy-related outfit in Texas, Global Marine had gotten very rich during the oil boom. And even though its stock price was at a multiyear low in 1984, around $5, the company still had a lot of assets. Its book value—assets minus liabilities divided by total shares outstanding—was around $10. That meant, by classic value investment standards, GLM was a potential winner. I grabbed my handmade earnings models and proudly strolled into Geoff’s office. “This looks good, Scott,” he said. “Let’s go pay them a visit and see what they have to say.”

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As we drove back on the Katy Freeway toward Texas Commerce’s gleaming headquarters in the distance, Geoff turned to me and said, “Well, what do you think?” I watched the road for a little while, trying to figure out why I was so reluctant to pull the trigger on GLM. It was a classic winner according to the rules of value investing. The share price was half the company’s book value. And Jerry’s presentation had been very persuasive. I’m sure most twenty-five-year-old financial rookies—and even a lot of seasoned money managers—would have left Global Marine’s offices eager to buy into the company. But I just couldn’t. First, even back then, I knew how risky it was to predict the bottom of a downturn.

All About Asset Allocation, Second Edition
by Richard Ferri
Published 11 Jul 2010

As more financial information became available, in part as a result of mandatory SEC reporting, investors became more sophisticated. Researchers created and compared ratios such as price/earnings ratios (P/E ratios) and the P/E to earnings growth. In addition, a company’s market price/book value became a leading dividing line. It was widely believed that earnings and book value ratios gave clues to finding profitable investment opportunities. Stocks with low price/earnings and price/book ratios were considered better values than stocks with high ratios. In 1934, Benjamin Graham and David Dodd wrote guidelines that quantified these ratios in their timeless investment book Security Analysis.

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Morningstar categorizes companies using CHAPTER 6 108 TA B L E 6-3 Variables and Weights Used by Morningstar in Style Analysis Value Factors Growth Factors Price/projected earnings (50.0%) Long-term projected earnings growth (50.0%) Historical earnings growth (12.5%) Sales growth (12.5%) Cash-flow growth (12.5%) Book value growth (12.5%) Price/book (12.5%) Price/sales (12.5%) Price/cash flow (12.5%) Dividend yield (12.5%) a “multifactor” model that consists of five variables. Table 6-3 highlights those five factors. The most influential factors in the equation are the stock’s price compared to its past earnings and price compared to projected earnings.

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The book is still one of the most widely distributed investment classics of all time.2 Not much has changed since Benjamin Graham and David Dodd wrote the book on fundamental investing over 75 years ago. Today, investors still analyze the same fundamental factors and price ratios, and they still look for value using earnings and book value. Granted, there have been some changes in the way people analyze the data and the amount of information available to the public. However, the speed and accuracy of computers has made the analysis hundreds of times faster, even after an increase in the amount of data. As security valuation progressed over the years, analysts and academic researchers began to agree on standard labels for categories of stocks based on styles.

Portfolio Design: A Modern Approach to Asset Allocation
by R. Marston
Published 29 Mar 2011

VALUE AND GROWTH INDEXES FOR EARLIER PERIODS Stock market data collected by the University of Chicago’s CRSP data set are available back through 1926. These market data form the basis for the SBBI data set of large and small cap stock returns. To develop value and growth indexes, however, it’s necessary to obtain the book value of common equity from the balance sheets of the firms being studied. The Compustat data set provides this information, but this data set does not have book value data prior to 1963 (and is in any case biased by overweighting larger firms).6 Fama and French have developed indexes for value and growth extending all the way back to 1926. The division between small-cap and large-cap stocks is based on stocks in the NYSE only even though the indexes include stocks from the AMEX and NASDAQ (the latter after 1972).

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The division between small-cap and large-cap stocks is based on stocks in the NYSE only even though the indexes include stocks from the AMEX and NASDAQ (the latter after 1972). The median stock in the NYSE by size is used to split stocks into the two size categories. To extend value and growth indexes back prior to 1963, Fama and French use hand-collected data on book value to rank firms by their book-to-market ratios. Unlike the Russell indexes, therefore, the Fama-French indexes are based only on book value-to-market data. The results reported below are for the indexes defined using the 30 percent of firms with the highest book-tomarket ratios as the value firms and the 30 percent of firms with the lowest book-to-market ratios as the growth firms.

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According to Banz, not only are returns on smallcap stocks higher than those on large-cap stocks, but there is an abnormal excess return when measured against the capital asset pricing model (CAPM) security market line. In a series of widely-cited studies, Fama and French show that the size effect (together with the book value effect to be discussed in the next chapter) is important in explaining stock market returns.2 Researchers established that small-cap stocks had another intriguing feature. Most of the small-cap premium occurs in one month, January. Keim (1983) was among the first studies to document this anomaly.3 Using daily data for the period from 1969 to 1979, Keim showed that more than 50 percent of any small-cap premium is due to January returns and that 50 percent of this January premium is achieved in the first week of trading.

What Happened to Goldman Sachs: An Insider's Story of Organizational Drift and Its Unintended Consequences
by Steven G. Mandis
Published 9 Sep 2013

Weinberg said, “I always felt there was a terrific risk and still do, that when you start going that way [an IPO] you are going to have one group of partners who are going to take what has been worked on for 127 years and get that two-for-one or three-for-one. Any of us who are partners at the time when you do that don’t deserve it. We let people in at book value, they should go out at book value.”10 While I was at Goldman, one partner privately told me that he felt terrible that an IPO would make him worth more money than the management committee partner who had helped build the firm and helped get him promoted to partner. He estimated that this man, who had worked at the firm for more than twenty years and retired before the IPO, was worth an estimated $20–$40 million, compared with newer partners like him, some of whom had worked at the firm for less than ten years and would be worth more than $50 million.

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In discussions, most IPO opponents expressed the concern that going public could “destroy what makes Goldman Sachs Goldman Sachs.”5 A contemporary report described the process of debating and then postponing the IPO as “a wrenching experience that has bruised the firm.”6 It created tensions between the firm’s active general partners and retired limited partners, between Goldman’s investment bankers and traders, and between Corzine and Paulson.7 The discussion was personal, because people had to consider their own self-interest as well as the interests of the firm.8 Partners screamed and cried during one meeting in what one observer described as a “cathartic experience.”9 Conflict arose between new partners and those who had been at the firm longer and had a much greater stake in the firm and were about to retire. Partners with longer tenure, whose Goldman equity and percentage had gained greatly in value and now would get multiples of their book value, had a greater personal financial incentive to favor an IPO. Some partners were rumored to believe they should be compensated, through the IPO, for staying in 1994, turning the firm around, and taking the risk when others left. But John L. Weinberg said, “I always felt there was a terrific risk and still do, that when you start going that way [an IPO] you are going to have one group of partners who are going to take what has been worked on for 127 years and get that two-for-one or three-for-one.

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He estimated that this man, who had worked at the firm for more than twenty years and retired before the IPO, was worth an estimated $20–$40 million, compared with newer partners like him, some of whom had worked at the firm for less than ten years and would be worth more than $50 million. Understandably, dissatisfaction was greatest among the retired limited partners, and tension between them and the general partners (essentially, Goldman’s controlling owners) became heated. As the IPO was originally structured, limited partners would have received a 25 percent premium over the book value of their equity, whereas general partners would have seen premiums of nearly 300 percent.11 Whitehead predicted a major problem if this inequity were not resolved. Issues related to fairness and compensation were also raised by nonpartners because of Goldman’s long-standing policy of not paying high salaries to the “all-important junior executives—the ones who do the grunt work—holding out instead the brass ring of partnership and its potential for eight-figure incomes.”12 Divisions also arose between the investment bankers and the traders.

Hedgehogging
by Barton Biggs
Published 3 Jan 2005

However, value was too slow for his blood; the Trigger needed emotion and momentum in his life. It was hard for him to truly fall in love with a dirty industrial dog just because it was cheap. I remember at the time his telling me, “Value sucks and Ben Graham was a loser. Buying cheap stocks on book value analysis is for small-minded accountants. I miss the adrenaline rush from an up stock or running in the shorts with a tail.”This was sacrilege, because (just in case you don’t know) Benjamin Graham is the god of value investing ccc_biggs_ch05_46-62.qxd 12/7/05 3:06 PM Page 53 The Odyssey of Starting a Hedge Fund 53 and wrote the bible, a book called Security Analysis.

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If so, we had to be close.The U.S. equity market had sunk to just below the lows of the previous summer, and most other markets in the world had broken through their two 2002 bottoms. For the technicians, this was a very bad sign, suggesting a break to lower lows. Strategists on CNBC were raging about the S&P 500 going to 500 (it was then 760), and a serious student of valuation, Andrew Smithers in London, called to say his work on replacement-cost book value showed incontrovertibly that U.S. equities were still 30% too expensive. If we were right, however, and markets were either close to or at a major bottom, then it would be a great time for us to start. The issue was whether at a time like this we could raise any significant money other than our own.With a fourth down year for equity markets looming, the mood of the Morgan Stanley brokers was gloomy.

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He was short the dollar by a factor of three times his equity, and he had more than 100% of his equity in Japan, half in the banks, and half in the Japan Topic Index. In addition, he had 200% of his equity in two-year U.S. Treasury notes as an insurance position. Sometimes he also owns a few exotic positions; like right now, he owns a significant interest in a North Korean bank and commercial real estate in St. Petersburg. The bank sells at a third of book value and the real estate yields 15%. He travels continually. He is a very curious, inquisitive man. He operates almost like a secret agent. For example,Tim has big positions in Russian and Japanese banks. He isn’t just content with the usual fare of company meetings and government officials in Moscow and St.

Big Data: A Revolution That Will Transform How We Live, Work, and Think
by Viktor Mayer-Schonberger and Kenneth Cukier
Published 5 Mar 2013

How to explain the vast divergence between Facebook’s worth under accounting standards ($6.3 billion) and what the market initially valued it at ($104 billion)? There is no good way to do so. Rather, there is widespread agreement that the current method of determining corporate worth, by looking at a company’s “book value” (that is, mostly, the worth of its cash and physical assets), no longer adequately reflects the true value. In fact, the gap between book value and “market value”—what the company would fetch on the stock market or if it were bought outright—has been growing for decades. The U.S. Senate even held hearings in the year 2000 about modernizing the financial reporting rules, which emerged in the 1930s when information-based businesses scarcely existed.

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(That, by way of comparison, was roughly the market capitalizations of Boeing, General Motors, and Dell Computers combined.) What was Facebook actually worth? In its audited financial accounts for 2011, with which investors sized up the company, Facebook reported assets of $6.3 billion. That represented the value of its computer hardware, office equipment, and other physical stuff. As for the book value placed on the vast stores of information that Facebook held in its corporate vault? Basically zero. It wasn’t included, even though the company is almost nothing but data. The situation gets odder. Doug Laney, vice president of research at Gartner, a market research firm, crunched the numbers during the period before the initial public offering (IPO) and reckoned that Facebook had collected 2.1 trillion pieces of “monetizable content” between 2009 and 2011, such as “likes,” posted material, and comments.

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Senate even held hearings in the year 2000 about modernizing the financial reporting rules, which emerged in the 1930s when information-based businesses scarcely existed. The issue affects more than just a company’s balance sheet: the inability to properly value corporate worth arguably produces business risk and market volatility. The difference between a company’s book value and its market value is accounted for as “intangible assets.” It has grown from around 40 percent of the value of publicly traded companies in the United States in the mid-1980s to three-fourths of their value at the dawn of the new millennium. This is a hefty divergence. These intangible assets are considered to include brand, talent, and strategy—anything that’s not physical and part of the formal financial-accounting system.

The Bank That Lived a Little: Barclays in the Age of the Very Free Market
by Philip Augar
Published 4 Jul 2018

These actions, Jenkins said, produced a rise of 3 percentage points in Barclays’ tier one equity ratio since 2012, significantly lower leverage, a more focused business model and an improving reputation. Despite this progress, Jenkins’ note continued, the bank’s returns were not good enough to please shareholders. Barclays’ return on equity was poor and remained below the cost of equity. As a result, the share price was far below the book value of each share. Many banks at the time experienced this same problem but Barclays’ discount to book value was more than that of many of its peers. Wherever the bank operated, Jenkins said, returns were being squeezed by the demands of regulators. In the UK, the ringfence between the retail and investment banks would increase costs from 2019 onwards.

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The British and American economies were shrinking, interest rates were being cut, governments were trying everything they could to stimulate business and consumer spending but investors were convinced a recession was imminent. The FTSE 100 index closed 2008 31 per cent down over the year, its biggest ever annual fall. But ‘the Thinker’ believed that the markdown had been indiscriminate and that some good companies had been overlooked – Barclays, for example. The share price was trading at a third of book value, half the level of other UK banks, and even below the US banks, which he thought included some real basket cases. Was Barclays really the worst bank in its peer group? William did not think so and that meant that either Barclays was underpriced or the rest were overvalued. He switched on his computer and began to work out which.

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Too much would damage the investment bank’s revenue potential, too little would leave Barclays over-invested in what was now a low return business. Jenkins formed a small team in head office, the Stealth Group, to look at this question. Its conclusions were startling. They believed that the investment bank was the reason Barclays’ shares were trading at less than half book value – the bank’s assets minus the liabilities spread across the number of shares in issue – and that Barclays would never cover the cost of its equity while it retained an investment bank. In 2010, Barclays Capital used £200 billion of risk weighted assets; Project Electra had cut this to £120 billion, but the Stealth Group believed that a further cut to £60 billion was required to bring the risk weighted returns up to acceptable levels.

The Quants
by Scott Patterson
Published 2 Feb 2010

The surprising answer, they discovered, was yes. The value and momentum anomalies in stocks they’d studied in academia could actually work for entire countries. It was a monumental leap. They would measure a country’s stock market, divide that by the sum of the book value of each company in that market, and get a price-to-book value for the entire country. If Japan had a price-to-book value of 1.0 and France had a price-to-book of 2.0, that meant Japan was cheap relative to France. The investing process from there was fairly easy: long Japan, short France. The applications of this insight were virtually endless. Just as it didn’t matter whether a company made widgets or tanks, or whether its leaders were visionaries or buffoons, the specifics of a country’s politics, leadership, or natural resources had only a tangential bearing on the view from a quant trader’s desk.

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IBM is big: it has a market cap of about $150 billion. Krispy Kreme Doughnuts is small, with a market cap of about $150 million. Other factors, such as how many employees a company has and how profitable it is, also matter. Value is generally determined by comparing a company’s share price to its book value, a measure of a firm’s net worth (assets, such as the buildings and/or machines it owns, minus liabilities, or debts). Price-to-book is the favored metric of old-school investors such as Warren Buffett. The quants, however, use it in ways the Buffetts of the world never dreamed of (and would never have wanted to), plugging decades of data from the CRSP database into computers, pumping it through complex algorithms, and combing through the results like gold miners sifting for gleaming nuggets—flawed coins with hidden discrepancies.

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Fama and French unearthed one of the biggest, shiniest nuggets of all. The family tree of “value” has two primary offspring: growth stocks and value stocks. Growth stocks are relatively pricey, indicating that investors love the company and have driven the shares higher. Value stocks have a low price-to-book value, indicating that they are relatively unloved on Wall Street. Value stocks, in other words, appear cheap. Fama and French’s prime discovery was that value stocks performed better than growth stocks over almost any time horizon going back to 1963. If you put money in value stocks, you made slightly more than you would have if you invested in growth stocks.

Toward Rational Exuberance: The Evolution of the Modern Stock Market
by B. Mark Smith
Published 1 Jan 2001

Graham and Dodd argued that a securities analyst should seek to determine the “intrinsic value” of a given stock, which was often very different from the current market price of that stock. However, they specifically rejected the concept of “intrinsic value” commonly employed in the early years of the century, defined as the book value of a company’s shares (assets per share minus liabilities per share), admitting that time had shown that book value had no connection to corporate earnings or stock prices. To Graham and Dodd, a stock’s “intrinsic value” was “that value that was justified by the facts, e.g., the assets, earnings, dividends [and] definitive prospects” of a company, “not capitalization of entirely conjectural future profits.”

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One of the most significant findings appearing to undermine the notion of market efficiency was published in 1992 by Eugene Fama himself.10 Fama and a colleague found that both book-to-market ratios and the size of a company could be used to predict future returns. (The “book” value of a company is the value of its assets minus its liabilities. The book-to-market ratio is simply book value per share divided by the market price per share of the stock.) Stocks in companies with low book-to-market ratios tended to outperform other stocks, and smaller stocks tended to outperform larger stocks, adjusted for beta risk. On the face of it, this result seemed to flat-out contradict Fama’s notion of market efficiency.

…

Steel had a broader significance, reflecting the first inklings of changing standards for valuing stocks. Those critics who alleged that a substantial quantity of water existed in the new trust were in a way correct, given the essentially static analysis prevalent at the time. It was customary to speak in terms of a company’s “intrinsic” worth, usually defined as its “book value”—the total of assets minus liabilities. The Federal Commissioner of Corporations, later looking back on the birth of U.S. Steel, made use of the traditional valuation approach in attempting to calculate the true worth of the corporation at the time of its formation. Adding together the values of its constituent parts, he calculated that U.S.

Anatomy of the Bear: Lessons From Wall Street's Four Great Bottoms
by Russell Napier
Published 18 Jan 2016

Stocks also crashed through all previously accepted limits imposed by considerations of book value. Helpfully, the Wall Street Journal provided a table comparing price-to-book and price-to-working capital ratios for 21 of the 30 Dow Jones Industrial Average stocks on 18 May 1932, with comparison to the low prices of 1921. FIGURE 56. KEY DJIA MEMBERS – PRICE TO BOOK AND PRICE TO WORKING CAPITAL Source: Wall Street Journal, 19 May 1932. Note: The 1932 and 1921 low prices for the 21 stocks are shown in percentages of book value, excluding intangibles, and of equities in working capital, after deducting full par value of all prior obligations.

…

In relation to this book I would like to acknowledge the assistance of four of the course author/ teachers in particular: Michael Oliver, Gordon Pepper, Andrew Smithers and Stephen Wright. Michael and Gordon have done their best to steer me through the minefield of monetary data interpretation necessary in this book. Andrew and Stephen have been kind enough to allow me to quote from their book, Valuing Wall Street. Any errors which may appear in these pages on the subject of q ratios or money are those of the student rather than the teacher. For those who also wish to learn from the teachers please come and join us on the Practical History of Financial Markets course, buy a copy of Valuing Wall Street or Gordon Pepper’s The Liquidity Theory of Asset Prices.

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The last of the Waldorf crowd, which had been persistently bearish on the market, was driven in. 12 September: During the current week thousands of shares of the better class of industrial and railroad stocks have been absorbed by large interests who are convinced that, with the inevitable reactions, the tendency of business as well as security markets, will be upward… The advance this week is undoubtedly due to an improvement in general business conditions…The bear crowd has been given one of the worst beatings in the history of Wall Street… Many brokerage houses who advised profit taking are now convinced by the action of the market that the rise is anything but a flurry engineered by professional operators. 14 September: ‘As to the security market, the capitalizations of many concerns are today selling below net current assets over current liabilities. The shares of many corporations are selling at one-third of their respective book values. Security prices like these are too attractive to exist for any great length of time. Already we hear that the textile, shoe and many other industries are rapidly getting back to normal.’ [William Boyce Thompson, mining entrepreneur and former director of the Federal Reserve Bank of New York.] 14 September: Outside of a handful of stocks, however there was little interest shown in the market and it was evident that the recent rise had not encouraged public participation. 16 September: Already the floating supply has been reduced and it may well be that in six months’ time we shall be saying that there are not enough stocks to go around.

The Power Law: Venture Capital and the Making of the New Future
by Sebastian Mallaby
Published 1 Feb 2022

The central principle of the venture business, Davis once explained boldly, could be summed up in four words: “Back the Right People.”[28] For his part, Rock made a habit of skipping over the financial projections in business plans and flipping to the back, where the founders’ résumés were presented.[29] “The single most important factor in the long run for any company is, of course, management,” Rock told the Harvard Business School Club of San Francisco in 1962. “However, I believe that in the applied science industry this is especially true.” The only asset of tech startups, and the only possible reason to invest in them, was human talent, or what Rock liked to call “intellectual book value.” “If you are buying intellectual book value, then you’d better place a great deal of emphasis on the people who you hope will capitalize on their intellect,” Rock lectured.[30] Unlike later venture capitalists, many of whom were engineers by background, Davis and Rock lacked the training necessary to evaluate the technical ideas of founders.[31] They made up for this deficiency by seeking advice from their fund’s limited partners, several of whom were running scientific startups.

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See also Amazon Google, 179–80, 184, 186 Kalanick and Uber, 353 power law and, 7 Trump’s criticism of, 402 Big Tech, 15, 380, 388 Bill, Jobs., 82 BlackBerry, 331 Black Lives Matter, 385 “blitzscaling,” 357, 362, 364, 385–88 Blue Box, 110–11 Bochner, Steve, 329 Boeing, 12, 395 Bohemian Grove, 92 Bolger, John, 116 Bonderman, David, 358, 360, 362–63, 367 Bono, 19, 20 “book value,” 47. See also “intellectual book value” “bootstrapped,” 325 Bosack, Leonard, 109–19 background of, 109–10 founding of Cisco, 111–12 Sequoia Capital’s investment, 113–19 Boston, 18, 25, 94–95, 98–99, 109, 391 Botha, Roelof, 305–14, 326 application of behavioral science to venture capital, 309–11 background of, 305–6 Facebook investment, 194–96, 444n Stripe investment, 319–20 WhatsApp investment, 307–8, 314 Xoom investment, 306, 313 YouTube investment, 306–7, 309–10 Boulevard of Broken Dreams (Lerner), 397 Boyer, Herbert, 73–78 Breyer, Jim, 258–61, 306 Brin, Sergey, 173–76, 178–91, 290.

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Judgments about technology startups would “come from either ‘the seat of the pants’ or the ‘top of the hat,’” as Rock once wrote to Davis.[27] Quantitative investment metrics such as the price-earnings ratio would be irrelevant, because the most promising ventures were likely to have no earnings whatever at the point when they sought capital. Likewise, they would lack the physical assets—the buildings, machines, inventory, and vehicles—that constituted “book value” at mature companies: thus another standard metric used in public markets would be meaningless. In sum, venture capitalists would have to bet on startups without the reassuring yardsticks used by other financiers. They would have no choice but to practice finance without finance. Having discarded conventional investment metrics, the partners needed something else to go by.

Dear Chairman: Boardroom Battles and the Rise of Shareholder Activism
by Jeff Gramm
Published 23 Feb 2016

That’s more compensation than the CEOs of much larger companies, including McDonald’s, Burger King, Popeyes, and Wendy’s. Biglari’s payout formula is based on increases in the company’s book value. In 2014, Biglari Holdings made a rights offering to shareholders at a 40% discount to the share price.41 This forced shareholders to pony up more money to prevent their ownership from being diluted. The net effect of the rights offering? Biglari Holdings received an infusion of capital that increased the company’s book value, making Sardar’s compensation go up. If the proceeds are then invested in his hedge funds, he’ll also get 25% of the profits after the 6% hurdle rate.

…

The brothers managed to raise enough money to buy the company back in its foreclosure auction, but both men died within fifteen months. In 1937, Robert Young and two partners bought the Van Sweringens’ 43% stake in Alleghany for only $6.4 million. The deal gave Young, at forty years old, effective control of 23,000 miles of railroad, and assets with a book value of $3 billion.14 Of course, the company was heavily indebted and Young quickly learned that he would have to fight his lenders to retain control of Alleghany’s railroads. His first battle was the 1938 proxy fight against Guaranty Trust for the C&O Railway. It would take Young until 1942 to secure his ownership of the Alleghany shares and get a clear-cut majority on the C&O’s board.

…

One classic Buffett Partnerships investment was in Dempster Mill Manufacturing Company, a Nebraska windmill and farm equipment maker founded in the nineteenth century. Buffett framed it this way: “The qualitative situation was on the negative side . . . but the figures were extremely attractive.”3 Dempster was a manufacturing business operating in a tough industry. It produced only nominal profits but traded at a very steep discount to its book value. Buffett was buying the company for less than half the value of its cash, inventory, and accounts receivable minus all liabilities. He first bought Dempster stock in 1956, joined the board in 1958, and then crossed 50% ownership to get control in 1961.4 Buffett pushed management to improve profit margins, but nothing worked.

After the New Economy: The Binge . . . And the Hangover That Won't Go Away
by Doug Henwood
Published 9 May 2005

Not to pick on Lev— Novelty 21 1207or market to book ratio, 100% nonfinancial corporations, 1945-2002 though he's an irresistible target—but the relation is nicely illustrated by his claim (Lev 2000) that since the market value of the companies in the Standard & Poor's 500 index was 6.25 the firms' book value,'" "in the U.S., know^ledge assets account for six (!) of every seven dollars of corporate market value" (exclamation point in original). So, you see, knov^ledge assets drive the New Economy. How do we know this? Because the stock market tells us so. How do we know the stock market is right? Well, it just is.

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In the meantime, selling shareholders and employees exercising stock options lose when the stock is undervalued, and new stock issued into an underpriced market dilutes shareholders' equity." If the revenues and earnings don't materialize, and thereby justify the 2% pop, then that's a kind of mispricing, but it's much more fun than waiting years! 10. Book value equals the sum of the value of a firm's physical and financial assets less its debts and other Habilities. 11. SpecificaUy, the numbers come fiiom the Fed's flow of funds accounts—market value of equity divided by value of assets, both for nonfinancial corporations. 12. He also included with it an email from his editor, who burbled that she hadn't done much with it "since it's simply wonderfril :-)" [emoticon in original]. 13.

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Lee, 100 Balboa, Rocky, 198 Balibar, Etienne, 172-173, 239 bankruptcy, not in economists' models, 193 Barlow, Maude, 162 Bartiromo, Maria, 189-190 Baudrillard,Jean, 26 Becker, Gary, 94, 97 BeUo,Walden, 185 benefits, targeting of, 141-142 Berle,Adolph,212,213 bibhometrics "globahzarion," 145—146 "New Economy," 4 biotechnology, pubUc subsidy, 6 Biotic Baking Brigade, 239 birth weight, 81 Blodget, Henry, 195 Boesky, Ivan, 214 Bono, 177 book value, 232 border cultures, 172 Brady bonds, 221 brands, 17,18-19 Brand DNA, 18 Bretton Woods, 219 brokers productivity of, 64-66 salaries, 202 Brown & Co., 187 Buchanan, Pat, 151,173, 239 Burbach, Roger, 175 business, trust in, 32 Business Week cheerleading 1960s, 7-8 1990s, 32 New Economy poll, 31—32 California electricity crisis, 34,200 Silicon Valley income distribution, 105 Index California Public Employees Retirement System, 214 capital, measuring, 57 capitalism collective (Berle),213 as international, 167 periodizing, 175-176 capital account liberalization, 218 capital flight, 220 capital gains, 89,203 Cappelli, Peter, 76 caring professions, discrimination and, 96 Carrying Capacity Network, 162 Casarini, Luca, 160 Casey Bill, 232 Castells, Manuel, 26,147 Catholic social teaching, 140 Cavanagh,John, 162 cellular phone industry, 198 Center on Budget and Policy Priorities, 89-90 central banks.

Good Profit: How Creating Value for Others Built One of the World's Most Successful Companies
by Charles de Ganahl Koch
Published 14 Sep 2015

We satisfy the customer’s desire whenever we have the capability to do so, and the customer confirms that value by allowing us to profit. And there is much more value creation to come from Koch in the future. In 2007, I explained our management framework in a book called The Science of Success. When I wrote it, the book value of Koch Industries (adjusted for distributions) was about two thousand times greater than in 1961 when I returned home to Wichita, Kansas, to work for my father. As I mentioned earlier, the adjusted book value is now five thousand times greater. Even during the Great Recession of 2008 and its aftermath (one of the worst economic periods since the Great Depression), Koch Industries more than doubled its shareholders’ equity and increased its workforce by more than 40 percent.

…

This framework has enabled Koch to grow tremendously; indeed, it was essential to turning a company valued at $21 million in 1961 into one valued at $100 billion in 2014. (This $100 billion figure is derived from Forbes’s estimate of my brother David’s net worth and my net worth.) As shown on the next page, an investment of $1,000 in our company in 1960 would have a book value of $5 million today (assuming reinvestment of distributions)—a return 27 times higher than what a similar investment in the S&P 500 would have achieved. It is worth noting that our rapid growth in value has continued even as we have grown into a large organization with more than 100,000 employees.

…

Ike Moore, the former head of sales for Wood River, had worked for Sinclair ever since it bought the Wood River refinery in 1950. Moore knew that Fred had a desire to get back into the refining business, so when Sinclair Oil decided to sell its share in Great Northern, Ike let Fred know of the opportunity. My father ended up buying Sinclair’s interest, sight unseen, at book value: $5 million. His instincts and judgment proved right. At the time (February 1959), Pine Bend was running about 35,000 barrels per day, a little more than one-tenth of its capacity today. That summer, Wood River Oil and Refining Co., Inc., changed its name to Rock Island Oil and Refining Co., Inc.

The New Enclosure: The Appropriation of Public Land in Neoliberal Britain
by Brett Christophers
Published 6 Nov 2018

Under cash accounting, it is often only cash holdings that appear on the assets side of the balance sheet – land, property and other fixed assets are generally excluded. Furthermore, any non-cash assets that do appear are usually shown at ‘book value’ (the historical price paid for a particular asset) or are simply accorded a nominal value. Under accrual accounting, however, all assets are recognized, including land and buildings – and they are recorded not at book value, but at market value, ‘fair value’ or value in use, explicitly factoring in historic depreciation. The technicalities of different accounting systems may seem obscure, dry and irrelevant to the tangible politics and economics of public-land privatization, but in fact that’s not the case.

…

Critics have complained, however, that the privatization seriously undervalued this land – one site, for instance, achieved a sale price of £193 million, but was valued in the privatization prospectus at just £29 million. The Mirror newspaper raged about a ‘565% mark-up’, adding its voice to that of those who said Royal Mail and its land had been sold on the cheap.1 But the prospectus valuation was a net book value, not a market value – it was based on cash accounting, not accruals accounting. The Mirror, wittingly or otherwise, was comparing apples and oranges. Would the use of accrual accounting in the prospectus have helped the government secure a higher price for Royal Mail at privatization? Maybe, but maybe not.

…

With neat if uncomfortable symmetry, the remaining NHS estate has once again, just in the past eighteen months, been the subject of an influential, shrinkage-oriented investigation – this time by Sir Robert Naylor.1 His advisers, the consultants Deloitte, told him and the government that the market value of the estate is likely to be between £9 billion and £17 billion (compared to its book value of around £6 billion), and they believe some 1,300 hectares of land could be released from the acute estate alone, which spans around 3,500 hectares.2 In the run-up to the June 2017 general election, the prime minister, Theresa May, said in a television interview that she was enthusiastically backing the Naylor Report’s proposals.3 And soon the implications were evident – in August, it was reported that the Department of Health had ‘quietly doubled the amount of land it intends to dispose of’, a significant proportion of which is currently in use ‘for clinical or medical purposes’.4 Alongside widespread, ongoing actual de jure land privatization, moreover, there are today increasing signs of a trend towards forms of creeping – even insidious – de facto privatization: ‘sale’ of public land that potentially avoids scrutiny because it is not ‘real’ sale.

Investing Amid Low Expected Returns: Making the Most When Markets Offer the Least
by Antti Ilmanen
Published 24 Feb 2022

In a typical academic implementation of the value style, we sort a set of stocks by some measure of fundamental value to price, and we go long or overweight the cheap (“value”) stocks, while shorting or underweighting expensive (“growth”) stocks.4 A long/short portfolio may contain hundreds of stocks on each side to capture the value style exposure but hopefully little else, as the market exposures of longs and shorts broadly cancel out and the idiosyncratic security risk gets diversified away. Academic research mainly uses a deliberately simple ratio of market price to a fundamental anchor, such as a firm's book value, and then favors stocks with a high book/price ratio (B/P).5 Investors can also use other fundamental anchors besides book value, including earnings, cash flows, and sales.6 Composite value measures may be more robust to evolving markets and accounting practices. Another important decision is whether stocks are compared to a broad universe (“raw”) or more narrowly to their within-sector peers, or even more granularly to within-industry peers.

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The Asness-Frazzini (2013) “Devil” variant agrees in lagging the book values to ensure data availability but uses the most recent market values. 10 For example, Mauboussin-Callahan (2020) writes that tangible assets, such as factories, are on the decline, while intangible spending, such as research and development, is on the rise. Intangible investments are treated as an expense on the income statement. Tangible investments are recorded as assets on the balance sheet. Thus, a company that invests in intangible assets will have lower earnings and book value than one that invests an equivalent amount in tangible assets.

…

The simplistic ratio approach can miss subtleties of equity valuation, including future earnings growth and any accounting distortions due to differences in how the conservative accounting system records transactions and allocates revenues and expenses across fiscal periods (see Israel-Laursen-Richardson (2021)). 6 Because sales and cash flows are generated by the entire operations of the firm, it is appropriate to compare these to the enterprise value, whereas book value and earnings are better compared to equity market capitalization. Enterprise value is computed as the sum of total equity market capitalization, preferred stock, minority interest, and total debt. 7 Israel-Jiang-Ross (2017) and Kessler-Scherer-Harries (2020) explore the many design decisions and show that the indicator choice and sector neutrality matter most empirically.

The Accidental Investment Banker: Inside the Decade That Transformed Wall Street
by Jonathan A. Knee
Published 31 Jul 2006

Now, the prospective Goldman IPO looked like it would provide existing equity holders with as much as five times book value. Although the “limiteds” knew they were not entitled to the same value for their stakes as continuing partners, they wanted some kind of financial “kiss” for their contribution to positioning Goldman to command such a value in the public markets. And the last thing the current partners wanted was the legendary bankers from Goldman’s past picketing the NYSE on the day of the listing with signs saying “Goldman Unfair to Seniors.”6 To avoid any such unpleasantness, Corzine agreed, after much negotiation, to guarantee the limiteds a payout of two times book value. Second, just before the vote, in an embarrassingly public display of apparent quid pro quo, Corzine announced that Hank Paulson would move from being his number two to being his co-CEO.

…

Corzine knew he had the votes when the Executive Committee announced publicly in June that they were proceeding with the IPO. But then something happened that any IPO underwriter warns his client about. The markets turned south. Well before the announced date for the IPO, it became clear that achieving five times book value was out of the question. Then four times looked unrealistic. Then three times. Then it looked like the limiteds, with their guaranteed payout of two times book value, might make more than the continuing partners. The IPO was pulled in September 1998, indefinitely. Corzine was badly weakened by these events. How could the head of Goldman Sachs have agreed to a fixed price for the limiteds while everyone else was taking market risk, many asked?

…

In the battle that ensued, Corzine’s need to secure the IPO’s approval by the partnership led him to agree to two things that precipitated his downfall. The first was the deal he made with the “limited partners.” When a Goldman partner retired he “went limited” and slowly withdrew his capital based on a pre-agreed formula based on the book value of his holdings over a number of years. Relations with these senior members of the firm who had formally retired from the partnership but nonetheless still had a significant amount of continuing equity in the enterprise was always a sensitive topic. Many of the previous private banking partnerships had not survived precisely because of their failure to establish such a mechanism for the gradual withdrawal of capital.

Beat the Market
by Edward Thorp
Published 15 Oct 1967

And again, some judgments were made about the probable future course of the common stock. I told my brother the crash of May–June 1962 might develop into a disaster similar to 1929. It was necessary to estimate the worst calamity that might overtake Sperry in the ensuing five years. This company, vital to our national defense, had book value of about $10 a share. (Book value is a rough indication of the value of the assets of a company, less its debts.) I estimated that in the event of a true disaster, the common would not decline below 6, less than half its current price. It was difficult to put a ceiling on how high the common might move in five years.

…

Some early forms of hedging are detailed with some crude evaluation techniques. 211 INDEX ACF Brill, 37, 93 ARA, Inc., 109, 202 Accounts (see Brokerage account) Adjusted exercise price, 24 defined, 26 Adjusted warrants, 24 defined, 25 Adler Electronics, 10 Aeronautical Industries, 101 Air Force Eleventh Annual Summer Scientific Conference, 194 Air Reduction 37/8 of 1987, 149, 151 Alberta Gas Trunk Line, 202 Algoma Central Railway, 106 Alleghany Corp., 16, 29, 109 Allright Auto Parks, 202 American Commonwealth Power, 99, 101 American Foreign Power, 101 American Power & Light, 99 American Stock Exchange, handbook, 71-72, bans short sales in Moly warrants, 61 American Tobacco, 33, 34 Arbitrage, 23fn Armour, 37 Asked price, 19fn, 104 Atlas Credit Corp., 202 Atlas Corp., 16, 29 Automobile Banking, 202 Avalanche effect, 36, 37fn, 39, 41-42, 199-201 used in Bunker-Ramo warrants, 64 Axes, 21 Banning of short sales, 73, 74, 138 139 in Moly warrants, 61 Bar graph, 20 choosing candidates, 77-79, 160-161 compared with only buying common, 96-97 compared with only shorting warrants, 96-97 definition, 43-49 performance, 93-94, 99-102 204-209 possible size of investment, 196-198 simplified mechanical strategy, 91-97 with latent warrants, 155-161 with options, 163-167 Bean, Dr. Tom, 194 Bear market, 33 Beckham, Colonel, 194 Bid and asked prices, 104 Blough, Roger, 55 Blue chip, 33-34 Blue Monday, 56 Bonds, bank financing, 147-148 choosing bond situations, 150-161 commissions, 183 convertible, 141-161 prices, how quoted, 147fn Book value, 66 Brahe, Tycho, 191 Bramalea Consolidated, 202 British American Con., 202 Brokerage account, 169-179 cash account, 169-170 margin account, 170-174 mixed account, 64, 178-179 restricted account, 173 short account, 174-178 Bruce, E. L., 60 Bull market, 33 Bunker-Ramo, 62, 65, 93, 132 Burns, Arthur F., 14 Buy-in, 58, 105 Buying on margin, 39 Buying power, 40, 135, 178 definition, 173 Cage room, 57 Calls, 141-142, 161 definition, 162 with basic system, 163-167 Canad.

Shortchanged: Life and Debt in the Fringe Economy
by Howard Karger
Published 9 Sep 2005

Vehicles with branded titles are ineligible for traditional financing and extended warranties, are more expensive to insure, and are not eligible for manufacturer warranties or recalls. Regardless of their condition, branded-title vehicles are considered “junk” by insurers, state motor vehicle bureaus, and car manufacturers. As a result, they’re worth only a fraction of their book value.148 In one independent car lot I came across a six-year-old Acura with 70,000 miles on it. The retail blue book value (in excellent condition with a clean title) of the car was $8,000, or what the dealer was asking for it. When I inquired about the title, the salesperson said he didn’t have it but he could get it. The car was in good shape and drove well.

…

Some pawnshops allow customers to extend the loan indefinitely by paying only the interest. As one pawnshop manager put it, “It’s not unusual for customers to renew their loans for a year or more.” The pawnshop loan is typically about 33%–50% of what a broker expects to receive if he or she sells the item.4 Appraisals are low—jewelry appraises at wholesale value, guns at 60% of blue book value, and appliances at 10%–30% or less of their original cost. Mary Bradley’s sister, Lucy, is a recovering drug addict who, like many addicts, frequently stole money and “pawnable” goods from her family. Since Mary’s family was wealthy, the pickings were good. Mary got to know pawnshops well, because after things disappeared, she and her mother regularly visited them to recover their missing goods.

…

It has 30-40 cars at any given time, it’s located on a wide Texas highway, and its sales office is in a small prefab building. Its stock consists mainly of high-mileage vehicles bought at auction, at least six years old, and of little interest to most fran-chised car dealers. Sunshine purchases its vehicles well below book value, rarely paying more than $2,000 for any car. The minor reconditioning generally costs less than $300. Sunshine’s strategy is to sell a lot of $5,000–$8,000 cars fast.159 A big sign painted with a cheery sun sits in front of its lot. In prominent letters the sign advertises that Sunshine will “tote-the-note” and provide in-house financing.

The Four Pillars of Investing: Lessons for Building a Winning Portfolio
by William J. Bernstein
Published 26 Apr 2002

Although tame by today’s standards, in the depths of the depression, recommending any stock ownership at all was a startling piece of advice. What did the market look like in 1932? Prices were so low that the dividend yield was nearly 10%, and remained above 6% for more than a decade. Almost all stocks sold for less than their “book value” (roughly, the total value of their assets), and fully one-third of all stocks sold for less than one-tenth of their book value! (By comparison, today, the average S&P 500 stock sells at about six times book value.) In short, stocks could not be given away, even at these prices. Anyone paying good money for them was considered certifiable. The aftermath of the Nifty Fifty and the bear market of 1973–1974 is equally instructive.

…

Even the most diehard efficient market proponent cannot fail to be impressed with their track records and bestow on them that rarest of financial adjectives—“skilled.” First, a look at the data. Of the two, Buffett’s record is clearly the most impressive. From the beginning of 1965 to year-end 2000, the book value of his operating company, Berkshire Hathaway, has compounded at 23.6% annually versus 11.8% for the S&P 500. The actual return of Berkshire stock was, in fact, slightly greater. This is truly an astonishing performance. Someone who invested $10,000 with Buffett in 1964 would have more than $2 million today.

…

And, yes, there’s a fund tracking this microcap index, although it isn’t available to the general public. Figure 13-1. The four corners of the market. How do you draw the line between a value company and a growth company? The most common approach splits the market by the ratio of price-to-book values by thirds, into value (bottom third) and growth (top third), with the middle third being called “blend.” Here things start to get a little confusing. The Barra/Vanguard method splits value and growth into halves according to market cap—the most expensive half of the market cap is designated as “growth,” the other half as “value.”

Planet Ponzi
by Mitch Feierstein
Published 2 Feb 2012

Oh yes, and a nuclear mess that isn’t cleared up and seems all set for a tragic replay. As for the purported health of the private sector: don’t be fooled. At the time of writing, Bank of America, which is the largest bank by assets in the United States, has a stock market capitalization equal to just 25% of its book value.7 A company’s book value is the total accounting value of its assets less the total accounting value of its liabilities. The value of its liabilities is relatively uncontroversial: a company owes what it owes. The value of its assets, however, is much more uncertain. A bank may claim that (let’s say) its mortgage book is worth $10 billion, but perhaps impending delinquencies and defaults mean that its true value is nearer $9 billion, or $8 billion.

…

The fact that the stock market’s coldly calculating eye values Bank of America at just one-quarter of its supposed financial worth speaks volumes about how little faith the market truly has in the firm. And Bank of America is far from unique. Citigroup and JP Morgan Chase also trade at a substantial discount to book value. In Europe, RBS is valued at less than a fifth of book value, Deutsche Bank and Paribas at little more than half. It’s is being reported that RBS is in line for a fresh injection of government funds.8 In short, in the course of this very brief introductory review we’ve found that the US government has exponentially spiraling debts, that the monetary authorities appear to be slaves to the same Ponzi-ish gods, that the debt crisis in Europe is profound and growing, and that some of the major pillars of the global financial sector are worth a fraction of what their accounts would seem to imply.

…

Madoff’ into their Inmate Locator. 4 ‘Bernie Madoff baffled by SEC blunders,’ New York Daily News, Oct. 31, 2009. 5 I haven’t sought to update The Economist’s data. The relatively low number for Manhattan real estate is eye-catching, but you can verify this from the NYC FY12 Tentative Assessment Roll, published Jan. 14, 2011. 6 Graph available direct from the Federal Reserve, www.federalreserve.gov. 7 Data from Reuters, extracted Aug. 19, 2011. 8 All book value ratios extracted from Reuters, Aug. 16–19, 2011. For more on the possible further injection of state funds into RBS, see Robert Peston, ‘If RBS needs capital, taxpayers will suffer,’ BBC Business News, Oct. 7, 2011. 9 Laurence Kotlikoff, ‘US is bankrupt and we don’t even know it,’ Bloomberg, Aug.11, 2010 (www.bloomberg.com).

Evidence-Based Technical Analysis: Applying the Scientific Method and Statistical Inference to Trading Signals
by David Aronson
Published 1 Nov 2006

Here, I summarize some of these key findings: • Small capitalization effect: A stock’s total market capitalization, defined as the number of shares outstanding multiplied by its price per share, is predictive of future returns.45 Stocks in a portfolio composed of the lowest decile portfolio of market capitalization earned about 9 percent per year more than stocks in the highest decile portfolio.46 This effect is most pronounced in the month of January. Recent studies show this indicator’s predictive power has disappeared since the mid to late 1980s. • Price-to-earnings ratio effect: Stocks with low P/E ratios outperform stocks with high P/E ratios.47 • Price-to-book-value effect: Stocks with low price to book value ratios outperform stocks with high price to book value ratios.48 The cheapest stocks, in terms of price to book, outperformed the most expensive stocks by almost 20 percent per year. • Earnings surprise with technical confirmation: Stocks reporting unexpected earnings or giving earnings guidance that is confirmed by strong price and volume action on the day after the news is announced earn an annualized return spread (longs – shorts) over the next month of over 30 percent.49 This strategy is a marriage of fundamental and technical information.

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However, because information that is known privately can never be confirmed, this version is not testable in a practical sense. 138 METHODOLOGICAL, PSYCHOLOGICAL, PHILOSOPHICAL, STATISTICAL FOUNDATIONS The semistrong version of EMH makes a less informative and narrower claim, saying that the market is only efficient with respect to public information. This version of EMH can be falsified with any evidence of market-beating returns produced by an investing strategy based on either public fundamental data (P/E ratios, book values, and so forth) or technical data (relative strength rank, volume turnover ratios, and so forth). In effect, EMH semistrong denies the utility of fundamental and technical analysis. Finally we have EMH weak, which makes the least bold and least informative claim. It asserts that the market is only efficient with respect to past price, volume, and other technical data.

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These earlier, and similarly misguided, efforts to save EMH were in response to studies that had shown that public fundamental information, such as the price-to-book ratio and PE ratio, could be used to generate excess returns.35 In response to this inconvenient evidence, EMH defenders claimed that low price-to-book ratios and low PE ratios were merely signals of stocks with abnormally high risk. In other words, the fact that a stock’s price is low relative to its book value is an indication that the company is facing difficulties. Of course, this reasoning is circular. What is key here is the fact that EMH advocates had not defined low price-to-book or low PE as risk factors in advance of the studies showing that stocks with these traits were able to earn excess returns.

Capitalism Without Capital: The Rise of the Intangible Economy
by Jonathan Haskel and Stian Westlake
Published 7 Nov 2017

This has occurred as R&D and SG&A (selling, general, and administrative expenses) as a percentage of sales has risen (see the solid line): the point being that many intangible investments, such as design, are allocated by accounting rules to SG&A. Figure 9.2. The declining informativeness of earnings and book value reporting. Bars show fraction of variance in market values accounted for by earnings and book values for companies entering stock market in successive decade. Line shows average R&D and selling, general, and administrative expenses as a share of scales for companies. Source: Lev and Gu 2016, figure 8.2. Second, Mary Barth, Ron Kasnik, and Maureen McNichols (2001) find that analysts are much more likely to cover firms with high intangible spending (measured by R&D and advertising).

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Rises in house prices for selected US cities Figure 6.5. Rises in real house prices for UK regions, 1973–2016 Figure 6.6. “Openness to Experience” and voting to leave the EU Figure 9.1. “Management” and “Leadership” mentions in the Harvard Business Review Figure 9.2. The declining informativeness of earnings and book value reporting Tables Table 2.1. Examples of Tangible and Intangible Business Investments Table 3.1. Categories of Intangible Investment Boxes Box 4.1. Knowledge, Data, Information, and Ideas: Some Definitions Box 5.1. Productivity and Profitability Explained Box 6.1. Measures of Inequality Box 6.2.

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But if they had invested in building trademarks in-house, the additions to intangible assets would have been zero.11 As a consequence, much (at least internal) investment in assets is hidden from view. Does that matter? Three tests suggest it is important. The first test is very broad brush, but revealing. Lev and Gu (2016) looked at companies that went public over each decade from the 1950s to the 2000s. For each of those decades/groups of companies, they asked: How correlated are book values and earnings to market values? Their results are very striking and set out in figure 9.2. The histogram bars show a very clear decline in the correlations over the decades, suggesting that financial accounts have indeed become much less informative of company earnings. This has occurred as R&D and SG&A (selling, general, and administrative expenses) as a percentage of sales has risen (see the solid line): the point being that many intangible investments, such as design, are allocated by accounting rules to SG&A.

Mastering Private Equity
by Zeisberger, Claudia,Prahl, Michael,White, Bowen , Michael Prahl and Bowen White
Published 15 Jun 2017

OpFCF thus provides a business’s earnings after deducting the spending required to maintain the profitability and competitive position of the company. EV/Sales: Sales multiples are typically employed for companies with strong growth but high cyclicality and low or negative profitability. However, sales multiples are an incomplete comparison as they do not consider profitability or cash flow. EV/Book Value: EV to book value, or net asset value, is used for asset-heavy companies. Book value provides an intuitive, simple figure for comparison as it represents the residual value to the company’s owners after subtracting the value of liabilities from the value of assets. Exhibit 7.5 Historical Valuation Multiples of the Telecommunications Industry Multiples are typically considered on both a historical (last 12 months, or LTM) and forward-looking basis to reflect a company’s current and forecast performance.

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INDEX “2+20” fee structure “10+2” model 100-Day Plan see also First-100-Day-plan acquisitions active ownership boards of directors corporate governance family-owned SMEs minority settings specific settings advisors advisory committee, LP affiliated funds, LPAs all capital first model alpha alternative investment vehicles alternative strategies American-style waterfalls see deal-by-deal carry with loss carry-forward anchor investors articles of association (AOA) Asia asset classes assets under management (AUM) evolution of PE portfolio management private capital auctions AUM see assets under management ballooning portfolios benchmarks BidCo legal entity “bidding on the book” bidding for deal board deadlock boards of directors active ownership board members equity documentation P2P buyouts bonds book values bottom-up valuation boutiques breaches of contract break-up fees bridge loans broken deal fees business angels business risk buyers deal structuring direct secondaries exit processes LP secondaries “buying right and creating value early” approach buy-ins buyouts boards of directors characteristics corporate governance deal pricing debt documentation definition exit processes funding instruments historical aspects management buyouts management teams P2P transactions pricing adjustments target valuation transaction documentation types see also leveraged buyouts capital committed vs invested equity future aspects LPAs private capital calls capital efficiency carried interest carve-outs cash flow to debt service covenant cash flows EBITDA as proxy free cash flow effect management OpFCF risk management see also J-curves CDD see commercial due diligence change management chief executive officers (CEOs) China CIM see Confidential Information Memorandum clawbacks clean exits closed-end funds closing mechanisms club deals co-investments active/passive attractions of CPPIB investment approach direct investment funds portfolio management positioning risks of selection issues success rates commercial due diligence (CDD) commercialization committed capital common equity company valuation compensation plans Europe vs US European example completion accounts mechanism concentration risk conditions precedent (CPs) conditions subsequent Condor Travel Confidential Information Memorandum (CIM) conflicts listed PE firms listed PE funds management teams organizational culture consent clause, GPs consultants contingent payments contractual subordination control rights core-plus strategies corporate governance active ownership alignment of interest family-owned SMEs minority settings principles in a buyout sense of urgency SMEs in emerging markets specific settings triangle of governance corporate venture capital correlation costs of listing covenants CPPIB investment approach CPs see conditions precedent credit risk Crossland Logistics currency hedging data rooms DCF see discounted cash flow method DD see due diligence deal-by-deal carry with loss carry-forward deal documentation deal execution deal making deal pricing bidding for deal buyouts closing mechanisms outside the financial model P2P transactions post-closing adjustments deal selection deal sourcing annual deal funnel due diligence emerging markets exit preparation generating flow growth equity statistics venture capital deal structuring the art of buyers buyout funding instruments downside scenarios investment structures SPVs deal teams deals debt buyout documentation buyout funding instruments commitment letters deal pricing distressed investment structures see also junior debt; senior debt default events default risk denominator effect direct investment co-investment CPPIB investment approach implementation challenges institutional investors limited partners LP direct investment portfolio management risk ways to market direct lending direct secondaries directors see also boards of directors discounted cash flow (DCF) method discounts dissolution of fund distressed debt distressed end-of-fund life options distressed private equity distressed debt Europe vs US private debt turnaround investing “distribution-in-kind” distribution waterfalls diversification divestment period dividend preference provision dividend recapitalization documentation drag-along provisions dry powder due diligence (DD) areas of commercial considerations “conspiracy” exit preparation formal DD fund manager selection growth equity preliminary DD the process duration of fund early-stage companies see also start-up companies earnings before interest, tax, depreciation and amortization (EBITDA) buyouts deal pricing EMI music company financial due diligence financially driven CEOs growth equity target valuation valuation multiples economic alignment economic net income (ENI) economics of PE educating investors emerging markets deal sourcing ESG family-owned SMEs growth equity portfolio management EMI music company employee stock ownership plans (ESOPs) end-of-fund life options adjustment of fund terms distressed options extension of term steady-state options engagement, ongoing ENI see economic net income enterprise value (EV) buyouts definition target valuation valuation football field valuation multiples entrepreneurship entry multiples environmental factors environmental, social and governance (ESG) factors emerging frameworks emerging markets ESG today from risk to opportunity growth markets the individual factors measuring impact equity capital equity commitment letters equity control equity documentation control provisions economic provisions key provisions equity funding instruments equity story EquityCo entity ESG see environmental, social and governance factors ESOPs see employee stock ownership plans Europe compensation plans distressed private equity evolution of PE European-style waterfalls see all capital first model EV see enterprise value EV/Book Value valuation multiple EV/EBITDA valuation multiple events of default evolution of PE attractiveness of PE development of PE emerging segments future aspects impact of PE the next five years success and imitation three predictions EV/OpFCF valuation multiple EV/Sales valuation multiple executive mentors exit processes considerations dividend recapitalization early/late in fund life exit paths growth equity IPOs management optimizing exits preparing for sale secondary buyout concerns uniqueness of final asset “exit supercycle” experienced management fair value family businesses family-owned SMEs FDD see financial due diligence feeder funds fees break-up co-investment LPAs structures Final Investment Memorandum financial due diligence (FDD) financially driven CEOs firms see also listed PE firms First-100-Day plan first lien term loans first-time entrepreneurs first-time funds foreign exchange risk free cash flow effect full service value creation fund closings fund formation fund vehicles LPAs setting up funds fund-level fees fund management fund manager risk GP/LP relationship selection of manager fund restructuring fund structures, LPs fund terminology funding/funds alternatives to VC buyout instruments definition of PE funds funding risk funding in stages leveraged buyouts portfolio construction transfers winding down fundraising definition documentation first-time entrepreneurs last 45 years placement agents process roadmap timing/success chart GAAP see Generally Accepted Accounting Principles gas industry general limited partners (GLPs) general partners (GPs) adverse deal selections consent clause definition direct investment distributions post-exit ESG evolution of PE fund formation fundraising GP-led liquidity solutions in-house vs outsourced key relationships operational value creation optimizing exits performance reporting perspective of GP relationships with LPs removal of GP responsible investment rights/duties and LPAs risk management sale of the GP secondaries winding down funds zombie funds Generally Accepted Accounting Principles (GAAP) geographic location, VC global financial crisis (GFC) globalization GLPs see general limited partners good leaver/bad leaver provision governance see also corporate governance; environmental, social and governance factors GPs see general partners gross margin improvement growth equity characteristics corporate governance definition emerging markets exiting investments investment process minority shareholder rights partnerships targets target valuation unlocking growth value creation growth markets hands-on-support hedging risk high yield bonds holding period, definition human resources due diligence (HRDD) human resources risk IBOs see institutional buyouts illiquidity ILPA see Institutional Limited Partners Association imitation of success impact investing incentives indemnification independent directors industrialist endeavour, PE as an industry guidelines, ESG infrastructure funds in-house provisions initial public offerings (IPOs) in-kind distributions INSEAD Value Creation 2.0 (IVC 2.0) institutional buyouts (IBOs) institutional investors Institutional Limited Partners Association (ILPA) institutionalization of PE integrated ESG approach intercreditor agreements interest see carried interest interim liquidity interim performance reporting company valuation gross performance net performance unrealized value intermediated deal flow internal rate of return (IRR) bidding for deal corporate governance IRR conundrum modified IRR performance reporting invested capital investment growth equity process leveraged buyouts management manager, definition period, definition responsible restrictions VC process investment structures complex structure deal structures debt considerations equity considerations equity vehicles simple structure investors IPOs see initial public offerings IRR see internal rate of return IVC 2.0 see INSEAD Value Creation 2.0 J-curves junior debt debt instruments distressed private equity leveraged buyouts key performance indicators (KPIs) key person clause, LPAs key person risk KPIs see key performance indicators last 12 months (LTM) late-stage venture-backed companies LBOs see leveraged buyouts LDD see legal due diligence leadership legal due diligence (LDD) letters of intent (LOIs) leverage effect, IVC 2.0 leveraged buyouts (LBOs) bidding for deal “buying right and creating value early” approach capital efficiency compensation plans corporate governance deal structuring funding initial public offerings loan agreements management teams target valuation valuation value creation value drivers leveraged recapitalizations LFs see listed PE funds LGPs see listed PE firms lien subordination lifecycles of funds limited partners (LPs) advisory committee co-investments commitment strategies definition direct investment distributions post-exit dividend recapitalization ESG evolution of PE exit processes fund formation fundraising in-house vs outsourced limited liability optimizing exits outsourced vs in-house performance reporting perspective of LP portfolio management relationships with GPs responsible investment risk management secondaries secondary buyouts selecting investments winding down funds zombie funds limited partnership agreements (LPAs) capital and partners carried interest distributions post-exit organization partners and capital side letters zombie funds limited partnerships close-end direct investments PE fund structures portfolio management secondaries liquidation funds preference trusts liquidity GP-led solutions lack of interim minority shareholder rights portfolio management listed PE firms (LGPs) benefits of listing challenges from listing distraction from core business GAAP vs ENI listed PE funds (LFs) benefits challenges missing opportunities NAV comparison listed private equity (LPE) firms funds revenue generation loan agreements loans “loan-to-own” strategy locked-box closing mechanism LOIs see letters of intent LPAs see limited partnership agreements LPE see listed private equity LPs see limited partners LTM see last 12 months MAC see material adverse change macroeconomic risk majority deals management advisors capability change fees incentives portfolios presentation management buy-ins (MBIs) management buyouts (MBOs) management teams aligning VC funds assessment/appraisal board members buyouts changing chief executive officers compensation plans conflicts entrepreneurs management perspectives PE owner perspectives securing views of the PE owner role managers, fund managing investments market risk marketing material adverse change (MAC) mature companies MBIs see management buy-ins MBOs see management buyouts mentors, executive mezzanine loans MFN see most favored nations provisions minority equity stakes minority shareholders modified IRR (MIRR) MoM see multiple of money invested monitoring corporate governance fees management teams portfolio management zombie funds most favored nations (MFN) provisions multiple of money invested (MoM) multiples entry valuation natural resources investment NAV see net asset value NDAs see non-disclosure agreements negative screening net asset value (NAV) listed PE funds performance reporting portfolio management risk management secondaries net debt next 12 months (NTM) non-disclosure agreements (NDAs) non-performing loans (NPLs) North America see also United States (US) NPLs see non-performing loans NTM see next 12 months oil industry operating control operating free cash flow (OpFCF) operating partners operating teams operational change operational value creation full service industrialist endeavors in-house vs outsourcing levers for measurement outsourcing vs in-house resources roadmap OpFCF see operating free cash flow opportunistic strategies organizational challenges organizational culture outsourcing overhead reduction P2P see public-to-private transactions parallel funds partners see general partners; limited partners partnerships see also limited partnership...

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INDEX “2+20” fee structure “10+2” model 100-Day Plan see also First-100-Day-plan acquisitions active ownership boards of directors corporate governance family-owned SMEs minority settings specific settings advisors advisory committee, LP affiliated funds, LPAs all capital first model alpha alternative investment vehicles alternative strategies American-style waterfalls see deal-by-deal carry with loss carry-forward anchor investors articles of association (AOA) Asia asset classes assets under management (AUM) evolution of PE portfolio management private capital auctions AUM see assets under management ballooning portfolios benchmarks BidCo legal entity “bidding on the book” bidding for deal board deadlock boards of directors active ownership board members equity documentation P2P buyouts bonds book values bottom-up valuation boutiques breaches of contract break-up fees bridge loans broken deal fees business angels business risk buyers deal structuring direct secondaries exit processes LP secondaries “buying right and creating value early” approach buy-ins buyouts boards of directors characteristics corporate governance deal pricing debt documentation definition exit processes funding instruments historical aspects management buyouts management teams P2P transactions pricing adjustments target valuation transaction documentation types see also leveraged buyouts capital committed vs invested equity future aspects LPAs private capital calls capital efficiency carried interest carve-outs cash flow to debt service covenant cash flows EBITDA as proxy free cash flow effect management OpFCF risk management see also J-curves CDD see commercial due diligence change management chief executive officers (CEOs) China CIM see Confidential Information Memorandum clawbacks clean exits closed-end funds closing mechanisms club deals co-investments active/passive attractions of CPPIB investment approach direct investment funds portfolio management positioning risks of selection issues success rates commercial due diligence (CDD) commercialization committed capital common equity company valuation compensation plans Europe vs US European example completion accounts mechanism concentration risk conditions precedent (CPs) conditions subsequent Condor Travel Confidential Information Memorandum (CIM) conflicts listed PE firms listed PE funds management teams organizational culture consent clause, GPs consultants contingent payments contractual subordination control rights core-plus strategies corporate governance active ownership alignment of interest family-owned SMEs minority settings principles in a buyout sense of urgency SMEs in emerging markets specific settings triangle of governance corporate venture capital correlation costs of listing covenants CPPIB investment approach CPs see conditions precedent credit risk Crossland Logistics currency hedging data rooms DCF see discounted cash flow method DD see due diligence deal-by-deal carry with loss carry-forward deal documentation deal execution deal making deal pricing bidding for deal buyouts closing mechanisms outside the financial model P2P transactions post-closing adjustments deal selection deal sourcing annual deal funnel due diligence emerging markets exit preparation generating flow growth equity statistics venture capital deal structuring the art of buyers buyout funding instruments downside scenarios investment structures SPVs deal teams deals debt buyout documentation buyout funding instruments commitment letters deal pricing distressed investment structures see also junior debt; senior debt default events default risk denominator effect direct investment co-investment CPPIB investment approach implementation challenges institutional investors limited partners LP direct investment portfolio management risk ways to market direct lending direct secondaries directors see also boards of directors discounted cash flow (DCF) method discounts dissolution of fund distressed debt distressed end-of-fund life options distressed private equity distressed debt Europe vs US private debt turnaround investing “distribution-in-kind” distribution waterfalls diversification divestment period dividend preference provision dividend recapitalization documentation drag-along provisions dry powder due diligence (DD) areas of commercial considerations “conspiracy” exit preparation formal DD fund manager selection growth equity preliminary DD the process duration of fund early-stage companies see also start-up companies earnings before interest, tax, depreciation and amortization (EBITDA) buyouts deal pricing EMI music company financial due diligence financially driven CEOs growth equity target valuation valuation multiples economic alignment economic net income (ENI) economics of PE educating investors emerging markets deal sourcing ESG family-owned SMEs growth equity portfolio management EMI music company employee stock ownership plans (ESOPs) end-of-fund life options adjustment of fund terms distressed options extension of term steady-state options engagement, ongoing ENI see economic net income enterprise value (EV) buyouts definition target valuation valuation football field valuation multiples entrepreneurship entry multiples environmental factors environmental, social and governance (ESG) factors emerging frameworks emerging markets ESG today from risk to opportunity growth markets the individual factors measuring impact equity capital equity commitment letters equity control equity documentation control provisions economic provisions key provisions equity funding instruments equity story EquityCo entity ESG see environmental, social and governance factors ESOPs see employee stock ownership plans Europe compensation plans distressed private equity evolution of PE European-style waterfalls see all capital first model EV see enterprise value EV/Book Value valuation multiple EV/EBITDA valuation multiple events of default evolution of PE attractiveness of PE development of PE emerging segments future aspects impact of PE the next five years success and imitation three predictions EV/OpFCF valuation multiple EV/Sales valuation multiple executive mentors exit processes considerations dividend recapitalization early/late in fund life exit paths growth equity IPOs management optimizing exits preparing for sale secondary buyout concerns uniqueness of final asset “exit supercycle” experienced management fair value family businesses family-owned SMEs FDD see financial due diligence feeder funds fees break-up co-investment LPAs structures Final Investment Memorandum financial due diligence (FDD) financially driven CEOs firms see also listed PE firms First-100-Day plan first lien term loans first-time entrepreneurs first-time funds foreign exchange risk free cash flow effect full service value creation fund closings fund formation fund vehicles LPAs setting up funds fund-level fees fund management fund manager risk GP/LP relationship selection of manager fund restructuring fund structures, LPs fund terminology funding/funds alternatives to VC buyout instruments definition of PE funds funding risk funding in stages leveraged buyouts portfolio construction transfers winding down fundraising definition documentation first-time entrepreneurs last 45 years placement agents process roadmap timing/success chart GAAP see Generally Accepted Accounting Principles gas industry general limited partners (GLPs) general partners (GPs) adverse deal selections consent clause definition direct investment distributions post-exit ESG evolution of PE fund formation fundraising GP-led liquidity solutions in-house vs outsourced key relationships operational value creation optimizing exits performance reporting perspective of GP relationships with LPs removal of GP responsible investment rights/duties and LPAs risk management sale of the GP secondaries winding down funds zombie funds Generally Accepted Accounting Principles (GAAP) geographic location, VC global financial crisis (GFC) globalization GLPs see general limited partners good leaver/bad leaver provision governance see also corporate governance; environmental, social and governance factors GPs see general partners gross margin improvement growth equity characteristics corporate governance definition emerging markets exiting investments investment process minority shareholder rights partnerships targets target valuation unlocking growth value creation growth markets hands-on-support hedging risk high yield bonds holding period, definition human resources due diligence (HRDD) human resources risk IBOs see institutional buyouts illiquidity ILPA see Institutional Limited Partners Association imitation of success impact investing incentives indemnification independent directors industrialist endeavour, PE as an industry guidelines, ESG infrastructure funds in-house provisions initial public offerings (IPOs) in-kind distributions INSEAD Value Creation 2.0 (IVC 2.0) institutional buyouts (IBOs) institutional investors Institutional Limited Partners Association (ILPA) institutionalization of PE integrated ESG approach intercreditor agreements interest see carried interest interim liquidity interim performance reporting company valuation gross performance net performance unrealized value intermediated deal flow internal rate of return (IRR) bidding for deal corporate governance IRR conundrum modified IRR performance reporting invested capital investment growth equity process leveraged buyouts management manager, definition period, definition responsible restrictions VC process investment structures complex structure deal structures debt considerations equity considerations equity vehicles simple structure investors IPOs see initial public offerings IRR see internal rate of return IVC 2.0 see INSEAD Value Creation 2.0 J-curves junior debt debt instruments distressed private equity leveraged buyouts key performance indicators (KPIs) key person clause, LPAs key person risk KPIs see key performance indicators last 12 months (LTM) late-stage venture-backed companies LBOs see leveraged buyouts LDD see legal due diligence leadership legal due diligence (LDD) letters of intent (LOIs) leverage effect, IVC 2.0 leveraged buyouts (LBOs) bidding for deal “buying right and creating value early” approach capital efficiency compensation plans corporate governance deal structuring funding initial public offerings loan agreements management teams target valuation valuation value creation value drivers leveraged recapitalizations LFs see listed PE funds LGPs see listed PE firms lien subordination lifecycles of funds limited partners (LPs) advisory committee co-investments commitment strategies definition direct investment distributions post-exit dividend recapitalization ESG evolution of PE exit processes fund formation fundraising in-house vs outsourced limited liability optimizing exits outsourced vs in-house performance reporting perspective of LP portfolio management relationships with GPs responsible investment risk management secondaries secondary buyouts selecting investments winding down funds zombie funds limited partnership agreements (LPAs) capital and partners carried interest distributions post-exit organization partners and capital side letters zombie funds limited partnerships close-end direct investments PE fund structures portfolio management secondaries liquidation funds preference trusts liquidity GP-led solutions lack of interim minority shareholder rights portfolio management listed PE firms (LGPs) benefits of listing challenges from listing distraction from core business GAAP vs ENI listed PE funds (LFs) benefits challenges missing opportunities NAV comparison listed private equity (LPE) firms funds revenue generation loan agreements loans “loan-to-own” strategy locked-box closing mechanism LOIs see letters of intent LPAs see limited partnership agreements LPE see listed private equity LPs see limited partners LTM see last 12 months MAC see material adverse change macroeconomic risk majority deals management advisors capability change fees incentives portfolios presentation management buy-ins (MBIs) management buyouts (MBOs) management teams aligning VC funds assessment/appraisal board members buyouts changing chief executive officers compensation plans conflicts entrepreneurs management perspectives PE owner perspectives securing views of the PE owner role managers, fund managing investments market risk marketing material adverse change (MAC) mature companies MBIs see management buy-ins MBOs see management buyouts mentors, executive mezzanine loans MFN see most favored nations provisions minority equity stakes minority shareholders modified IRR (MIRR) MoM see multiple of money invested monitoring corporate governance fees management teams portfolio management zombie funds most favored nations (MFN) provisions multiple of money invested (MoM) multiples entry valuation natural resources investment NAV see net asset value NDAs see non-disclosure agreements negative screening net asset value (NAV) listed PE funds performance reporting portfolio management risk management secondaries net debt next 12 months (NTM) non-disclosure agreements (NDAs) non-performing loans (NPLs) North America see also United States (US) NPLs see non-performing loans NTM see next 12 months oil industry operating control operating free cash flow (OpFCF) operating partners operating teams operational change operational value creation full service industrialist endeavors in-house vs outsourcing levers for measurement outsourcing vs in-house resources roadmap OpFCF see operating free cash flow opportunistic strategies organizational challenges organizational culture outsourcing overhead reduction P2P see public-to-private transactions parallel funds partners see general partners; limited partners partnerships see also limited partnership...

Carjacked: The Culture of the Automobile and Its Effect on Our Lives
by Catherine Lutz and Anne Lutz Fernandez
Published 5 Jan 2010

Their outlets mainly sell to people who have poor credit ratings or those who cannot get car loans because they haven’t yet held a credit card or borrowed any money—people like Inna, an Israeli immigrant to the United States who was told at a variety of used car lots that they couldn’t give a car loan to someone who was a “ghost,” that is, someone with no credit history. J. D. Byrider’s customers get the dubious opportunity to buy American cars of five or so years’ vintage at prices far surpassing the Blue Book value, and with loan rates far above even the worst of the used car lots that use bank financing. For instance, the day we visited, J. D. Byrider was selling a 2004 Hyundai Accent with 96,000 miles for $9,000. As with other cars on the lot, the true Blue Book value of the car, even in excellent condition, is much less, at $2,880. The cheerful salesman boasted that he helped people not just into a car, but into the American Dream of home ownership: “We help you establish a good credit history,” he said.

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Buyers without a credit history, such as many immigrants and young 108 Carjacked people, or those with bad credit ratings must shop at “buy here, pay here” lots, where the lot owners themselves make the car loans. In addition, the independent lots where the cheapest cars are found are often fly-by-night, sly-by-day operations, trading in cars with salvage or junk titles. Down payments are high, interest rates deserve to be called extortionate, and prices often far exceed the Blue Book value, factors that account for the much higher profitability of high-mileage car sales—on average, they extract a gross profit of $3,800 per car (and this on simple lots out on the edge of town with very low overhead).10 Loan rates for these used cars can soar as high as 35 percent, costing buyers a full $4,044 in interest for a two-year loan on a $10,000 vehicle.

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A moderately priced sedan like a Nissan Altima could cost $7,500 a year, a similarly sized Cadillac $12,300. These are the annual average costs figured over five years of ownership and 15,000 miles per year of driving for 2008 models at www.edmunds.com. See also Oasis Design, “Factsheet: What does driving really cost?” www.oasisdesign.net/transport/cars/ cost.htm. Kelly Blue Book values show an average American car selling for $1,750 less when driven 15,000 versus 5,000 miles over the course of five years. Jason E. Bordoff and Pascal J. Noel, Pay-as-You-Drive Auto Insurance: A Simple Way to Reduce Driving-Related Harms and Increase Equity (Washington, DC: Brookings Institution, July 2008).

The New Science of Asset Allocation: Risk Management in a Multi-Asset World
by Thomas Schneeweis , Garry B. Crowder and Hossein Kazemi
Published 8 Mar 2010

If the average return on this portfolio is positive, then we may conclude that expected return to inflation exposure is positive. In the same manner one can create factor portfolios representing size, value/growth, P/E, momentum, industry, and others. One of the most commonly used factor models is the Fama-French 4-factor model. The four factors are: 1. 2. 3. 4. Excess return to the market High book value minus low book value (HML) Small minus big (SMB) Up minus down (UMD) That is, HML represents returns to a long/short portfolio sorted on book-to-market, with high book-to-market stocks long and low bookto-market stocks short. SMB represents returns to a long/short portfolio, with small cap stocks long and large cap stocks short.

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See S&P Goldman Sachs Commodity Index (S&P GSCI index) Groupings, 111–117, 126–132 Growth in Corporate Earnings, 52 Hedge funds, 13, 43, 54, 59, 61, 65, 68, 89, 129, 131–132 benchmarks, 270–272 index vs fund investment example, 189–194 indices, 185–189 myths about, 219–223 return and risk performance, 140–143, 220 and risk, 118 sources of return, 139–140 Hedge ratio, 204, 205 Heuristic models, 120–122 HFRX indices, 189 High book value minus low book value (HML) factor, 45 Historical data, 94, 215 Hybrid REITs, 158 Illiquid assets, 63, 98, 217 Indices. See also Benchmarks INDEX alternative hedge funds, 186–188 biases, 192 buy-write, 206 commodity, 182–185 hedge funds, 185–189 passive security-based, 140 private equity, 171, 174 problems in creation of, 168–169 replication-based, 122–126 S&P/Case Shiller Home Price, 175 stocks and bonds, 168–170 Inefficiency, 101 Inflation risk, 96–97, 163, 196 Informational uncertainty, 214 Initial Portfolio Theory (IPT), 3 Inputs, estimating, 94–95 Insurance, 12, 98 Interest risk, 196, 198–199 Investable manager based hedge fund indices, 185 Investable securities, 123 Investment banks, 227–228 Investment horizon risk, 19 Investment managers, 25, 216–217, 218 active versus passive, 46 evaluation and review, 232–233 and fund returns, 215 hedge funds, 185 skill of, 139, 146 value of discretion, 230–232 Investments: alternative (See Alternative investments) correlations strategy, 68–69 descriptive statistics, 67 passive alternatives, 54 Investors, 218–219 attitudes and asset value, 213–214 and hedge funds, 139 objectives, 59–60, 99 protecting, 243–245 risk tolerance, 89, 117–119 J-curve effect, 151 Kurtosis, 29, 223 Lagging, 175 Lead-lag relationship, 103 Leverage, 218 Leveraged buyouts, 151 291 Index Liabilities, 96, 99 Linear factor models, 124 Linear regression, 7, 40, 198 Liquidity, 62, 64, 98, 122, 127 Liquidity risk, 197 Long collar, 208–210 Madoff, Bernard, 233–235 Managed futures, 65, 68, 143–148 Managers.

Mathematics of the Financial Markets: Financial Instruments and Derivatives Modelling, Valuation and Risk Issues
by Alain Ruttiens
Published 24 Apr 2013

How can we justify the use of the traditional Gaussian distribution in such a case? The pillars of usual option pricing, namely risk neutrality and non-arbitrage condition, are not really valid in the present case. 4.1.5 The book value method Given the uncertainties of the previous method, this may be viewed as more exempt from any assumptions, since the book value of a company is the objectively measurable difference of its assets minus its liabilities, that is, its net value if all debts were repaid and all assets sold off. Unfortunately, this boils down to a price valuation based strictly on the current situation of the company, without taking account of its future. 4.2 STOCK INDEXES Stock indexes can be built in two ways.

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Index 4-moments CAPM actual (ACT) number of days AI see Alternative Investments “algorithmic” trading Alternative Investments (AI) American options bond options CRR pricing model option pricing rho amortizing swaps analytic method, VaR annual interest compounding annualized volatility autocorrelation corrective factor historical volatility risk measures APT see Arbitrage Pricing Theory AR see autoregressive process Arbitrage Pricing Theory (APT) ARCH see autoregressive conditional heteroskedastic process ARIMA see autoregressive integrated moving average process ARMA see autoregression moving average process ask price asset allocation attribution asset swaps ATM see at the money ATMF see at the money forward options at the money (ATM) convertible bonds options at the money forward (ATMF) options attribution asset allocation performance autoregression moving average (ARMA) process autoregressive (AR) process autoregressive conditional heteroskedastic (ARCH) process autoregressive integrated moving average (ARIMA) process backtesting backwardation basket CDSs basket credit derivatives basket options BDT see Black, Derman, Toy process benchmarks Bermudan options Bernardo Ledoit gain-loss ratio BGM model see LIBOR market model BHB model (Brinson’s) bid price binomial distribution binomial models binomial processes, credit derivatives binomial trees Black, Derman, Toy (BDT) process Black and Karasinski model Black–Scholes formula basket options beyond Black–Scholes call-put parity cap pricing currency options “exact” pricing exchange options exotic options floor pricing forward prices futures/forwards options gamma processes hypotheses underlying jump processes moneyness sensitivities example valuation troubles variations “The Black Swan” (Taleb) bond convexity bond duration between two coupon dates calculation assumptions calculation example callable bonds in continuous time duration D effective duration forwards FRNs futures mathematical approach modified duration options physical approach portfolio duration practical approach swaps uses of duration bond futures CFs CTD hedging theoretical price bond options callable bonds convertible bonds putable bonds bond pricing clean vs dirty price duration aspects floating rate bonds inflation-linked bonds risky bonds bonds binomial model CDSs convexity credit derivatives credit risk exotic options forwards futures government bonds options performance attribution portfolios pricing risky/risk-free spot instruments zero-coupon bonds see also bond duration book value method bootstrap method Brinson’s BHB model Brownian motion see also standard Wiener process bullet bonds Bund (German T-bond) 10-year benchmark futures callable bonds call options call-put parity jump processes see also options Calmar ratio Capital Asset Pricing Model (CAPM) 4-moments CAPM AI APT vs CAPM Sharpe capitalization-weighted indexes capital market line (CML) capital markets caplets CAPM see Capital Asset Pricing Model caps carry cash and carry operations cash flows cash settlement, CDSs CBs see convertible bonds CDOs see collateralized debt obligations CDSs see credit default swaps CFDs see contracts for difference CFs see conversion factors charm sensitivity cheapest to deliver (CTD) clean prices clearing houses “close” prices CML see capital market line CMSs see constant maturity swaps Coleman, T.

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short-term rates discount basis trading futures rate basis trading spot instruments skewness smiles, volatility smirks, volatility SML see security market line Sortino ratio sovereign bonds Spearman’s rank correlation coefficient special purpose vehicles (SPVs) specific risk speed sensitivity splines spot instruments bonds correlation modeling currencies forex swaps Gaussian hypothesis alternatives prices rates short-term rates volatility spreads SPVs see special purpose vehicles standardized futures contracts standard Wiener process see also dZ; general Wiener process stationarity stationary Markovian processes stochastic processes basis of Brownian motion definition of process diffusion processes discrete/continuous variables general Wiener process Markovian processes martingales probability reminders risk neutral probability standard Wiener process stationary/non-stationary processes terminology stock indexes basket options futures stock portfolios stock prices stock valuation book value method DCF method Gordon–Shapiro method real option method stocks without dividends stress tests Structural model Student distribution swaps bond duration conditional CRSs curves forwards ISDA second-generation swap points swap rate markets variance volatility see also forex swaps; interest rate swaps swaptions systematic factors Taiwan dollars (TWD) Taleb, Nassim Taylor series TE see Tracking Error term structure theoretical price forward foreign exchange futures theta time, continuous/discrete time horizon, VaR time value of option time-weighted rate of return (TWRR) Tiscali telecommunications Total total period, FRAs Toy see Black, Derman, Toy process Tracking Error (TE) tranches transfer functions Treasury bonds Treynor ratio trinomial trees TWD see Taiwan dollars TWRR see time-weighted rate of return Uhlenbeck see Ohrstein–Uhlenbeck unexpected credit loss United States dollars (USD) CRS swaps forward foreign exchange futures NDOs swap rates market volatility unwinding swaps USD see United States dollars valuation callable bonds credit derivatives IRSs stocks troubles value-at-risk (VaR) backtesting correlation troubles example important remarks methods parameters variants value-weighted indexes vanilla IRSs vanilla options vanilla swaps CRSs in-arrear swaps IRSs vanna VaR see value-at-risk variance-covariance method, VaR “variance gamma” process variance swaps Vasicek model VDAX index vega VIX index volatility annualized basket options correlation modeling curves delta-gamma neutral management derivatives dVega/dTime general Wiener process historical implied intraday volatility modeling option pricing practical issues realized models smiles smirks variance swaps vega volga vomma VXN index weather White see Hull and White model white noise AR process see also Brownian motion; standard Wiener process Wiener see general Wiener process; standard Wiener process WTI Crude Oil futures Yang–Zang volatility yield, convenience yield curves capital markets components CRS pricing cubic splines method definition EONIA/OIS swaps implied volatility interest rate options interpolations linear method methodology money markets points determination example polynomial curve methods swap curve swaps see also term structure yield to maturity (YTM) Z see dZ Zang see Yang–Zang volatility zero-coupon bonds zero-coupon rates see also spot instruments, rates zero-coupon swaps Z-score

The Devil's Derivatives: The Untold Story of the Slick Traders and Hapless Regulators Who Almost Blew Up Wall Street . . . And Are Ready to Do It Again
by Nicholas Dunbar
Published 11 Jul 2011

The Billion-Dollar Swap Meet These two approaches to taking credit risk—the actuarial and the market approach—have created two distinct cultures in finance: the long-term world of lending banks, insurance companies, and pension funds, and the short-term world of trading firms and hedge funds. This cultural divide was hardwired into the system via accounting rules and regulations. Lending banks and insurers have typically recorded their holdings of loans and bonds at book value, which is the amount originally lent out, with some allowance for interest accruals. Book value could only be written down when a borrower had defaulted or was clearly in difficulty. Investment banks (including the parts of lending banks that trade), mutual funds, and hedge funds use fair value accounting. This is typically the market price, and if the market doesn’t like a particular borrower or its loans, this immediately lands on the balance sheets of its creditors.

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What most enraged Goldman was how banks such as the newly merged JPMC, Citigroup, and Bank of America were poaching blue-chip clients by dangling the prospect of actuarially driven cheap loans as a sweetener. For those that depended on traditional credit investors to lend them money, the historical pricing of default risk kept their loans cheap because they were still using accounting rules that kept the value of loans frozen at book value. This made their loans “cheaper” than those based on the CDS market—if JPMC lent $1 billion to a big customer, and the credit derivative market implied that the loan was now worth only $800 million, then so much the worse for credit derivatives. Without the ability to freeze the value of loans on its balance sheet, Goldman had to either sell loans at the secondary market price or buy credit derivative protection.

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Although Deutsche denies Linares’s involvement, the lure of the financial iPhone caught the attention of Justo Palma, a fund manager for a mutual fund company called BZ Gestion in the city of Saragossa, northeast of Madrid, in 2001.9 Palma invited several banks to propose a structured product for one of BZ Gestion’s money market funds, and Deutsche Bank won the tender, selling a REPON-style product containing a single slice of a synthetic CDO. Unfortunately, a money market fund is not the same as an insurance company, which holds its assets at book value. Palma’s purchase was marked to market once a month, and as the provider of the product, Deutsche was obliged to provide its valuation. This quickly exposed a significant difference between the price Palma had paid and what the CDO was worth, even without any defaults in the portfolio. By 2002, BZ Gestion noticed that its low-risk fund was heavily underwater, and worse still, it was a kind of fund that Spanish regulators had banned from investing in credit derivatives.

Hedge Fund Market Wizards
by Jack D. Schwager
Published 24 Apr 2012

We used to argue, why buy a piece of commercial real estate with a 6 percent cap rate or a bond with a 7 percent yield if you could buy a business like Macy’s with a 20 percent cap rate? For financial companies and banks, I use some of the following: Price/tangible book value—The tangible book value (TBV) is equal to the book value minus intangible assets, such as patents and goodwill. Assuming the loans on a bank’s balance sheet have been appropriately accounted for—a big assumption considering the events in the financial industry over the past several years—a bank trading around its TBV would represent the value at which one could theoretically liquidate the bank.

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At the start of 2000, I was trying to figure out what went wrong in 1999. I have what I call my Evel Knievel screen. These are companies that are trying to jump the Grand Canyon and probably won’t make it. There are only two conditions for the screen. First, the company is trading at more than five times book value. Second, the company is losing money. My job is to figure out which stocks won’t make it across the Grand Canyon and then go short those stocks. At the time, the Internet business model was to get share on the net. It didn’t make a difference how much money you lost doing it, as long as you increased your share.

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One problem with equal weighting is that stock number 500 is much smaller than stock number 1, and if too many people try to do equal weighting, the amount of buying in the smaller stocks would distort their prices. Additionally, because prices are always changing, there are more transaction costs in maintaining an equal weighted index. Because of these problems, Rob Arnott came up with a fundamentally based index (the RAFI FTSE index), which weights companies based on the size of their sales, book value, cash flow, and dividends rather than their market capitalization. Because the weighting factors used in the index are correlated to company market capitalization, larger market capitalization companies will account for a larger percentage of the total index. And since price is not involved, errors are also random, similar to an equal weighted index, and the index performs about 2 percent better than capitalization weighted indexes.

The Predators' Ball: The Inside Story of Drexel Burnham and the Rise of the JunkBond Raiders
by Connie Bruck
Published 1 Jun 1989

Icahn and others had started a new-wave proxy fight, in which the aim was not so much to replace management (although Icahn had done this at Baird and Warner) as to attract the attention of third parties to an undervalued company. And the issues in the proxy fight were framed in terms of shareholder profits. Icahn would point out that the stock was trading at some paltry fraction of book value, and that there was real potential for better earnings. In 1979 Icahn won a proxy fight to gain board seats and then forced the sale of Tappan, the stove-maker—whose stock was trading at around 8 and had a book value of over $20 a share—to AB Electrolux, a Swedish-owned home-appliance manufacturer, at a price that gave Icahn a profit of close to $3 million. “Tappan worked like a charm for Carl,” said his lawyer for that deal, Morris Orens of Olshan Grundman and Frome.

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Drexel’s monopoly of this market, following the earlier years of monopoly of the nontakeover junk market, had resulted in a trajectory of growth that was unprecedented on Wall Street. At the end of 1977, Drexel’s revenues were about $150 million; the firm had about $75 million in capital, of which less than $40 million was equity. The book value of its stock (as of August 1977) was $4.47 per share. By the end of 1985, the firm’s revenues were $2.5 billion; it had about $1 billion of capital, of which over 75 percent was equity. The book value of its stock was $58.66 per share. Its profits were thought to be about $600 million pretax and $304.2 million after taxes—which would place it not far behind the mammoth Salomon Brothers, which had nearly double Drexel’s capital.

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But in 1973 Burnham had no idea that the value of Drexel Firestone resided not in its major-bracket franchise but in one rather odd, intense figure segregated off in a corner of the trading floor. The juxtaposition of the names was the most costly part of the transaction for Burnham. Beyond that, he paid book value (the capital its partners had invested in it), mainly with subordinated debentures. Now Drexel, home to the kind of white Anglo-Saxon Protestants who took their genealogy seriously, not only had a Jewish trader peddling schlock bonds but had been taken over by a Jewish firm. Although Burnham and most of the top executives of the firm were Jews, Robert Linton, who became the firm’s chairman in the early eighties and who changed his name from Lichtenstein, demurred slightly at this characterization of Burnham and Company.

The Long Good Buy: Analysing Cycles in Markets
by Peter Oppenheimer
Published 3 May 2020

The MSCI indices based on growth and value, for example, include the following definitions:1 MSCI growth segmentation is based on five variables: Long-term forward EPS growth rate. Short-term forward EPS growth rate. Current internal growth rate. Long-term historical EPS growth trend. Long-term historical sales per share growth trend. MSCI value segmentation is based on three variables: Book value to price. 12-month forward earnings to price. Dividend yield. There tends to be some crossover between these factors and the cyclical versus defensive axis. Typically, value companies are more cyclical and defensive ones can overlap with growth to some degree. A simple correlation between value relative to growth and industrial production (a measure of growth in the real economy) shows a positive, albeit not very strong, relationship.

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According to the so-called value premium, first identified by Graham and Dodd (1934),2 shares with a high book-to-market ratio of equity value or low P/E ratio (generally referred to as value stocks) provide, on average, higher returns than shares with a low book-to-market ratio (growth stocks). This has been widely corroborated in the academic literature, perhaps most famously by Eugene F. Fama and Kenneth R. French,3 who showed that in the period from 1975 to 1995 the difference between average returns on global portfolios of high and low valuation stocks (using price-to-book value) was 7.68% per year and that value had outperformed growth in 12 of the 13 markets they examined. A more important driver of the relative performance between value and growth is their respective relationship with interest rates and bond yields, typically described as their ‘duration’. The definition of equity duration closely follows the definition of bond duration (identified by Macaulay [1938]).4 Similar to bond duration, equity duration relates to the length of time until investors expect to receive future cash flows from their investment in a company's shares; hence, in this sense, duration is a measure of the company's cash-flow maturity and, therefore, interest rate sensitivity.

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From that point, inflation started to fall around the world and, coupled with a vigorous recovery in economic activity from a deep recession, confidence – and asset valuations – started to rise. From August 1982 to December 1999, the compound real return on the Dow Jones Industrial Average was 15% per year, well in excess of long-run average returns or indeed the increase in earnings or book value over the period.5 Much of this secular bull market therefore reflected valuation expansion – a phenomenon that pushed up both equity and fixed income (bond) returns at the same time. The 1980s also experienced a wide range of deregulation, reform and privatisation under the Reagan and Thatcher administrations in the US and the UK, respectively.

Street Fighters: The Last 72 Hours of Bear Stearns, the Toughest Firm on Wall Street
by Kate Kelly
Published 14 Apr 2009

During a question-and-answer session with Cayne on another Bear investment day when the firm’s stock was flying high, one of the brokerage-firm analysts asked innocently if Cayne planned to have the company buy back any stock—a common tactic for returning capital to shareholders, reducing the number of shares outstanding, and boosting the earnings per share. “Why would I buy the stock when it trades at well over book value?” Cayne replied, indicating that the stock was far above the price he’d want to pay for it. Some of the analysts looked stunned. Watching from the sidelines, Molinaro was mortified. You want these people to recommend the stock to their clients, he thought, and yet you think it’s too expensive.

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BONY seemed uninterested, but Deutsche Bank appeared to be a possibility. He knew it would depend on what the big bosses in Germany thought. Schwartz opened the call to questions. Guy Moszkowski, a Merrill Lynch analyst, was one of the first to speak up. He had a “buy” rating on the company and a price target of close to $100 and wanted to know if Bear’s “book value,” the self-determined value of its assets—then estimated at a little more than $80 per share—still held. Molinaro said it did. There was a question about the pace at which prime-brokerage clients were withdrawing money from the firm: Had the pace accelerated that day? Molinaro stumbled. “It has been, I think, more or less—I don’t want to say at a higher level or a lower level—not materially different from what we’ve been dealing with during the week on that side.”

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Morgan that their lowball bid—literally a third of where the stock had traded on Friday!—was unacceptable. He and Schwartz talked it over. Could they rebuff J.P. Morgan? Molinaro asked. No matter how he looked at it, Bear was worth more than $8 to $12 per share. Just yesterday, Schwartz and Molinaro had told analysts on the investor call that Bear’s book value—the value the company assigned itself per share—was still intact, at more than $80 per share. Even with a substantial discount, Bear was worth at least $50 to $60 per share—wasn’t it? Away from the raw numbers, there was also the consideration of how J.P. Morgan could run a company if most of its employees simply fled.

Reinventing Capitalism in the Age of Big Data
by Viktor Mayer-Schönberger and Thomas Ramge
Published 27 Feb 2018

Accounting standards, for example, have long mandated that the value of certain assets on a company’s balance sheet should equal their historical cost. That was easy and straightforward: if land was bought for $1 million, its book value would also be $1 million. But that value did not necessarily reflect reality: the land might have gotten much more or less valuable in the meantime. The book value as a single figure provided information about the historical transaction but did not convey much about its current value. Figures in balance sheets could therefore not be trusted—not because they were wrong but because they might be outdated.

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See Daimler; Ford Motor Company; General Motors; Tesla Autopilot, 78 Autor, David, 195 Avant, 151 Bacon, Francis, 223 Baidu, 30, 151 Bank La Roche, 136 banks, 11, 12, 137, 138–140, 146–156 capital share of, 185, 186 central, 134–135, 149 choice expansion in, 215–216 cost cutting in, 146–148 crisis facing, 134–136 government loans to, 134 investment planning by, 150, 154–155 Italian merchant families in, 91 lending by, 150–151 payment businesses competing with, 146–147 poor insight of, 154 regulations affecting, 139–140 reinvention of from within, 146, 149–156 traditional role of, 138–139 Barclays, 215 Bardi family, 91 Barkai, Simcha, 194, 195 barter economy, 45 Bastani, Aaron, 221 Bauer, Florian, 55 Bear Stearns, 155 Beer, Staffors, 175–176 Bethlehem Steel, 95 Betterment, 151, 153 Bezos, Jeff, 68, 88, 89, 96, 106, 107, 130 Big Data, 77, 213, 219, 222 See also data-rich markets Bitcoin, 48, 147 BlaBlaCar, 3, 9, 65 blockchain, 147, 148 BMW, 120 book value, 172 bookkeeping, 92–93 bounded rationality, 104 Brezhnev, Leonid, 221 Bridgewater Associates, 114–115 Brookings Institution, 186 Brown, John Seely, 31 Brynjolfsson, Erik, 184, 220 Buick Motor Company, 98 cacao beans (as currency), 48 Canada, 191–192 capital, 15, 133–156 abundance of, 142–143, 194 banks’ shift from, 134–136, 138–140, 146–156 future role of, 11–12, 141 problems caused by decline of, 141–144 signaling with, 141–143 steady value of predicted, 144 See also money; price capital gains tax, 187 Capital in the Twenty-First Century (Piketty), 186 capital share, 185–186, 193–195, 197, 198 Carnegie Mellon University (CMU), 60 Case, Bob, 133–134 castells, 17–20 cell phones.

Nerds on Wall Street: Math, Machines and Wired Markets
by David J. Leinweber
Published 31 Dec 2008

Carol Loomis, “Robert Rubin on the Job He Never Wanted,” Fortune, November 28, 2007, http://money.cnn.com/2007/11/09/news/newsmakers/merrill_rubin.fortune/ index.htm. 6. Marking to market is the process of evaluating a security to reflect its current market value instead of its purchase price or book value. Marking to market is generally a good idea, but there are circumstances when it can serve to amplify the effect of what might otherwise be a short-lived mini-panic. A discussion is beyond the scope of this chapter. 302 Nerds on Wall Str eet 7. Ben Bernanke, “Reducing Systemic Risk,” Jackson Hole, Wyoming, August 22, 2008, http://federalreserve.gov/newsevents/speech/bernanke20080822a.htm. 8.

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Most likely, they will throw good money after bad investments (in order to avoid further write-downs), causing these banks to become an even bigger black hole of taxpayer money than in the TARP variations. Most damningly, it exacerbates the too-big-to-fail problem and will crowd out new, healthy private banks that may have otherwise emerged in the next few years. A Simple Structural Solution The $700 billion is a huge amount of money—more than the equity book values of Goldman Sachs, Morgan Stanley, JPMorgan, Citigroup, Washington Mutual, Bank of America, and Wachovia combined. This money should be used to capitalize new banks throughout the country. To be operational as quickly as possible and to preserve valuable human and operational capital, these banks will buy good operational assets from insolvent banks in FDIC receivership.

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The shares of the new banks will be distributed to the American Assets Deposits Cash $35B of New Equity Financial Assets Operational Assets Loan A Loan B Deposits Insolvent Bank Financial Assets Cash from Bank A Loan A Loan B FDIC Claims Liabilities FDIC Cash Liabilities New Bank A Operational Assets Assets $35B of New Equity Assets Cash Insolvent Bank Liabilities Assets New Bank A Figure 13.4 Once an insolvent bank enters FDIC receivership, the deposits, operational assets, and employees will be taken over by newly capitalized Bank A. It will pay book value for the assets. The rest of the assets will stay in receivership and be divided between the creditors and the FDIC. Bank A is able to become quickly operational with its share of the NABI $300B+ of lending capacity. Even more, the operational and human assets of the insolvent bank are preserved rather than liquidated. 

A Demon of Our Own Design: Markets, Hedge Funds, and the Perils of Financial Innovation
by Richard Bookstaber
Published 5 Apr 2007

And in many cases, once they have been created and the intellectual property has been claimed, they cannot be reproduced at any price. One simple indication that the current accounting conventions do not reflect the actual value of the enterprise is the disconnect that has appeared between market and book value. In the industrial era of the railroads, market value was all but defined by book value. If market value moved above book value, you would simply create the same enterprise for less money by replacing it brick by brick. The market-to-book ratio stayed near one-to-one through the 1970s, but since the 1980s has slowly moved up. The ratio in the mid-1990s was on average about three-to-one, and shot up to six-to-one by the end of the decade.

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And the merger made sense for Salomon’s largest shareholder, Warren Buffett, who had been spending years trying to figure out a profitable exit strategy for his Salomon investment. Salomon was being purchased 75 ccc_demon_051-076_ch04.qxd 7/13/07 2:43 PM Page 76 A DEMON OF OUR OWN DESIGN for more than $8 billion, nearly two times book value; in reaction, its stock had climbed 80 percent from its recent trading level. Buffett would be able to exchange his control of almost 20 percent of Salomon for a stake in Travelers Group, and with the Weill-led team he would have a firm that was run by the high-quality management he valued. But the impetus for the merger, what led to discussions in the late summer between Weill and Maughan, was the weakening of Salomon’s trading position from the MCI/BT trade.

Common Stocks and Uncommon Profits and Other Writings
by Philip A. Fisher
Published 13 Apr 2015

As I write these words in the closing weeks before the decade of the 80's is about to start, it amazes me that more attention has not been paid to restudying the few years of stock market history that started in the second half of 1946 to see whether true parallels may actually exist between that period and the present. Now, for the third time in my life-time, many stocks are again at prices which, by historic standards, are spectacularly low. In relation to reported book value, they may not be quite as cheap as they were in the post-World War II period. However, if that reported book value is adjusted for replacement value in real dollars, they may perhaps be cheaper than in either of the two prior, bargain value periods. The question arises: are the worries that are holding back stock values in the present period, such matters as the high cost of energy or the dangers from the political left or of overextended credit, with the inevitable resulting drain on the level of business activity as liquidity is restored, more serious and more apt to stop the future growth in this country than the fears that held back stock prices in these two prior periods?

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Instead it was in the “service business,” receiving fees for supplying market-research information to its customers. It was true that in 1958 banks and insurance companies had long been well regarded in the marketplace as industries worthy of conservative investment. However, such industries were hardly comparable. Since the book value of a bank or insurance company is in cash, liquid investments or accounts receivable, the investor buying a bank or insurance stock seemed to have a hard core of value to fall back on that did not exist for this new kind of service company being introduced to the financial public. However, investigation of the A.

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On March 13 the clos-ing quotation was 60, a gain of almost 25 percent! What had happened was that after the close of the exchange on the 12th, an announcement was made that Motorola was getting out of the television business and was selling its U.S. television plants and inventory to Matsushita, a large Japanese manufacturer, for approximate book value. Now it had been known generally that Motorola's television busi-ness was operating at a small loss and to that extent was draining the profits of the rest of the company's business. This of itself would warrant the news to cause some increase in the price of the shares, although hardly the degree of rise that actually occurred.

Toyota Production System: Beyond Large-Scale Production
by Taiichi Ohno and Norman Bodek
Published 1 Jan 1978

I want to advocate that, like workers, machines that give long service should be used with great, great care. The language of business economics talks of "depreciation," "residual value," or "book value" - artificial terms used for accounting, tax purposes, and convenience. Unfortu nately, people seem to have forgotten that such terms have no relevance to the actual value of a machine. For example, we often hear: "This machine has been depreciated and paid off, and, therefore, we can discard it any time without loss," or "The book value of this machine is zero. Why spend money on an overhaul when we can replace it with a new, advanced model?" This kind of thinking is a big mistake.

The Green New Deal: Why the Fossil Fuel Civilization Will Collapse by 2028, and the Bold Economic Plan to Save Life on Earth
by Jeremy Rifkin
Published 9 Sep 2019

The disruption in the European power and electric utility market is going to be even more disorienting in the coming years. Already, the discrepancy between the “book value” of property, plant equipment, and goodwill and the “enterprise value” of just Europe’s leading twelve utilities is reason for concern. The market value is only 65 percent of the book value, a wide disparity, suggesting that dire losses are yet to come. With the total book value of the twelve largest utilities listed at €496 billion ($560 billion), it’s not inconceivable, according to one study, “that 300–500 billion euros of these assets are exposed to the risk of getting economically stranded.”25 Apparently much of the rest of the world has failed to heed what has taken place in the European Union.

The Firm
by Duff McDonald
Published 1 Jun 2014

But it wasn’t until 1963 that Bower made a decision that, journalist John Huey correctly concluded, “permanently set him—and McKinsey—apart from its competitors.”3 Bower and his partners could have sold their firm at market value at the end of their careers as a way of cashing out, thereby personally reaping the rewards of their efforts. After all, at any successful firm, market value exceeds book value by a significant margin. Their contemporaries did it—the founders of George Fry & Associates and Barrington Associates both cashed out in the 1950s. McKinsey’s competitor Cresap, McCormick and Paget actually managed to sell itself twice in twelve years—first to Citicorp in 1970, and then to Towers Perrin in 1982 after having bought the firm back from Citi in 1977. Instead, Bower sold his shares back to the firm at book value. In doing so, he demonstrated precisely the kind of allegiance to the cause he expected of anyone wishing to be successful at McKinsey: He forsook considerable riches for the good of the institution, in the process giving young consultants the ability to buy their way into the partnership without mortgaging their houses to do so.

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But he also sent the message that working for McKinsey was like joining a special order of men willing to put the higher cause of the firm ahead of self-interest. Bower’s decision came as a surprise to many, including his own family. “Let me just say there was shock on people’s faces when he told us that he was selling his shares back to McKinsey at book value,” said his son Dick Bower. “It felt unbelievable, to tell you the truth. But that was Marvin for you.”4 Before Bower came along, any huckster could call himself a consultant, and many did. So Bower came up with a version of the job that drew from other real twentieth-century professions: The consultant would comport himself as a lawyer, with discretion and integrity; he would bring scientific, fact-based rigor and precision to the task, like an engineer or accountant.

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The firm did consider selling out to both the Systems Development Corporation (an air force spinoff) and the publicly traded systems analysis outfit Planning Research Corporation. But neither idea went very far. The staunch refusal of Bower and his partners to sell is quite likely the key to McKinsey’s enduring lead over its competition. Bower understood that selling shares to the public at a multiple of earnings (as opposed to selling back to his partners at book value) was a surefire way to become very, very rich. But it also created classes of haves and have-nots that most likely would eventually lead to the dissolution of the firm. That he chose not to do so is perhaps the most important road not taken in the history of the firm. John Forbis, at McKinsey from 1971 through 1983, put it simply enough: “Marvin not taking McKinsey public is like George Washington refusing the title of king—it did not match the founding principles.”31 Turnover and turmoil at those firms that did sell—Cresap was a money loser for Citibank, and Booz consultants took their firm private again in 1976 after its shares plunged—validated Bower’s vision.

Competition Demystified
by Bruce C. Greenwald
Published 31 Aug 2016

Subsequently, a steep run-up in research and development expenses through 1974 led to a reduced operating profit, but there was a sharp recovery in 1975. FIGURE 13.1 Polaroid’s sales and operating income, 1950–75 ($ million) The rapid, steady growth rate, combined with consistent profits, made Polaroid a Wall Street favorite. Throughout the period, the shares traded at hefty multiples of book value and earnings. Polaroid was a charter member of the “Nifty Fifty,” an elite group of firms in the late 1960s that had become the darlings of professional money managers. These companies were considered immune to the vicissitudes of a dynamic and competitive economy. Unfortunately, Polaroid’s stock price, like those of the other Nifty Fifty, declined sharply in the bear market of 1973–74.

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On these two quantitative measures, Nintendo passes the incumbent competitive advantage test, at least in the period before 1992. The stock market certainly priced Nintendo as if it owned a powerful franchise. In 1991, its market capitalization of 2.4 trillion yen (over $16 billioin in 1991 exchange rate) was ten times the book value of its equity. It had a higher market value than Sony and Nissan, firms considerably larger and more established. But if someone examined the sources of these competitive advantages in 1991, it was not at all certain that they would be sustained into the future. Captive Customers? Its large installed base of 8-bit video game consoles gave Nintendo some degree of customer captivity, due to the switching costs a customer faced once he had bought the machine.

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The reproduction cost of an asset is the cost of reproducing its economic function as efficiently as possible. For cash and marketable securities, there is no discrepancy between reported value and reproduction cost. For accounts receivable, the reproduction cost will actually be slightly higher than accounting book value. Receivables are essentially loans to customers generated by sales made in the normal course of business, and some of the loans will not be repaid. The reproduction value of inventory is the cost of producing equivalent amounts of salable inventory, which may be higher or lower than the book figure, depending on whether LIFO or FIFO accounting is being used, and on the trends in production costs.

Red-Blooded Risk: The Secret History of Wall Street
by Aaron Brown and Eric Kim
Published 10 Oct 2011

The Summer of My Discontent It wasn’t just in Cambridge and Washington. Consider accounting numbers. Until 1970 the book value of a company, its assets minus its liabilities, corresponded pretty closely to the price of its stock. Some companies were higher and some were lower, but the average price-book ratio never got too far from 1 for long. When companies went bankrupt, creditors collected something close to book value in most cases, minus about 20 percent on average for lawyers’ fees. But starting in the 1970s and to an increasing degree thereafter, the relationship between book value and market value broke. The two are basically unrelated today; in fact, it’s rare to find a company selling near book value.

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The two are basically unrelated today; in fact, it’s rare to find a company selling near book value. And about half the time when a company goes bankrupt, recovery for creditors is near zero. That means not only does the entire net value vanish overnight, but the assets turn out to be worth close to zero. The accounting numbers are still useful as indicators, but they have long since lost any connection to tangible economic reality, to the real prices real people pay for real things. Accounting makes it all add up nicely and neatly, but what’s being added isn’t real. Now, the reason I had come to Washington was not to work on the gas-rationing plan.

A Colossal Failure of Common Sense: The Inside Story of the Collapse of Lehman Brothers
by Lawrence G. Mcdonald and Patrick Robinson
Published 21 Jul 2009

Glucksman seized control of the executive committee and forced several of the investment bankers to sell shares back to the corporation at book value, for immediate distribution to the traders. Fuld did well. Thanks to Glucksman’s largesse, his own share count went from 1,700 to 2,750, valued around $1,000 apiece. As your average bonus grab goes, this one went high and tight. Divisiveness and tension were rife at Lehman during this time, and by early 1984, predictably, the talent started to walk. Six prominent bankers, led by Eric Gleacher, left that spring. And, as partners, they took the firm’s capital with them, at book value—17 percent of it, straight out the door. Lew Glucksman and Dick Fuld adopted an increasingly embattled stance, detested by many of their own banking partners.

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Shearson American Express’s Peter Cohen and James Robinson were now in active talks with the Lehman executive committee. But they were shocked by the discovery of more hidden assets on the Lehman books, used to offset trading losses. In the final reckoning, the firm’s book value had fallen 33 percent. Lehman’s banking partners were afraid that even more discrepancies would be found, but Shearson wanted to buy the firm, and in the end they went to $360 million for Lehman, a $175 million premium over stated book value. Thus 132 years of Lehman history was quietly dissolved. Once the envy of Wall Street, the revered private partnership had been swallowed whole by a financial supermarket. They’d survived the Civil War and two world wars but could not survive Glucksman and Fuld.

The Power of Passive Investing: More Wealth With Less Work
by Richard A. Ferri
Published 4 Nov 2010

The market (or index) is assigned a beta of 1.00, so a portfolio with a beta of 1.20 would have seen its share price rise or fall by 12 percent when the overall market rose or fell by 10 percent. bid-ask spread The difference between what a buyer is willing to bid (pay) for a security and the seller’s asking (offer) price. book value A company’s assets, minus any liabilities and intangible assets. book-to-market value (BtM) The book value of a company divided by its market value. broker/broker-dealer An individual or firm that buys or sells mutual funds or other securities for the public. capital gain/loss The difference between the sale price of an asset—such as a mutual fund, stock, or bond—and the original cost of the asset.

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premium An amount by which the price of a security exceeds the face value or redemption value of that security or the price of a comparable security or group of investments. It may indicate that a security is highly favored by investors. Also refers to a fee for obtaining insurance coverage. price-to-book ratio (P/B) The price per share of a stock divided by the stock’s book value (i.e., its net worth) per share. For a portfolio, the ratio is the weighted average price-to-book ratio of the stocks it holds. price-to-earnings ratio (P/E) The share price of a stock divided by its per-share earnings over the past year. For a portfolio, the weighted-average P/E ratio of the stocks in the portfolio.

Too big to fail: the inside story of how Wall Street and Washington fought to save the financial system from crisis--and themselves
by Andrew Ross Sorkin
Published 15 Oct 2009

As the conversation continued, Fuld suggested that Min’s plan to pay 1.25 times book value was “too low,” instead recommending they negotiate on the basis of 1.5 times book value. McDade and McGee couldn’t believe what they were witnessing. They had spent the past two days orchestrating a deal based on spinning off the real estate assets, and now Fuld was trying to retrade on their work. Worse, a look of horror crossed Min’s face. Min pulled Barancik aside and whispered, “I’m not comfortable with this,” and in response, Barancik spoke up on behalf of KDB. He said they would only negotiate on the basis of 1.25 times the book value valuation, and then, as his aggravation mounted, started questioning Lehman’s accounting.

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The discussions seemed to be going well, except for the fact that Fuld kept calling McDade’s and McGee’s cell phones every twenty minutes to ask for an update. By the next morning, at 11:00, Min said he had received authorization for Korean regulators to make an initial offer. He said he was prepared to pay 1.25 times Lehman’s “book value”—or the value at which Lehman held its assets on its balance sheet. The deal, which was still subject to a discussion about the firm’s true book value and would have included Lehman spinning off the real estate business, meant that KDB was valuing Lehman somewhere between $20 and $25 a share, a premium over its current share price, which had closed the day before at $15.57.

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So he called up Joseph Perella, the mergers and acquisitions guru who had recently started a new firm, Perella Weinberg Partners. “Listen, I’ve got something for you,” Fuld told Perella. “You’re going to get a call from ES. Do you know him? He used to work for me.” Fuld was explicit about what he needed out of the deal. “We’re trading at about $25. Our book value is $32. We need a premium, so we’d take $35 to $40.” Perella, who assigned the project to his colleague Gary Barancik, didn’t think the odds were good. KDB was a national institution with what seemed to him to be a local charter. They had no business branching out with a risky international deal.

How to Form Your Own California Corporation
by Anthony Mancuso
Published 2 Jan 1977

If a shareholder will purchase shares by transferring property to the corporation (we are referring to specific items of property here such as a computer system, a truck, a patent, or a copy­right; not the complete assets of a business—this latter situation is dealt with in the next example), be as specific as you can when entering the consideration (for example, “1987 Ford pickup, vehicle ID #__”), and show the fair market value of the property as the fair value of the payment. (In the case of a vehicle, Kelley Blue Book value is a good measure.) authorization of Issuance of shares Name Number of Shares Consideration Fair Value Steve Marconi and Katherine Marconi 1,000 Cash $1,000 Steve Marconi and Katherine Marconi 1,000 Cash $1,000     Steve Marconi and Katherine Marconi 1,000 Cash $1,000     Steve Marconi and Katherine Marconi 1,000 Cash $1,000     chapter 5 | steps to form your corporation | 127 Issuing Shares: A Quick Review Chapter 3 explains how to issue shares in compliance with the California limited offering exemption and federal securities laws.

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Example: If two business owners will be incorporating their pre-existing partnership, “Just Partners,” the following simple description in the consideration blank would be appro­ priate for each shareholder (each prior business owner): 128 | how to form your own california corporation “One-half interest in assets of the partnership ‘Just Partners,’ as more fully described in a bill of sale to be prepared and attached to these minutes.” You can prepare this bill of sale as part of Step 8, below. Each partner can list one-half of the dollar value of these assets (that is, one-half of their book value as reflected on a current balance sheet) as the fair value of the payment to be made by each shareholder. Issuance of Shares for Cancellation of Indebted­ ness. If shares will be issued for the cancellation of all debt the corporation owes to a shareholder, a description of the debt should be given as the consideration for the shares (for example, “cancellation of a promissory note dated ___________”).

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Typically, this provision only applies if a buyback price or procedure is not specified for a particular type of buyout covered elsewhere in the agreement (for example, it is common for agreements to 166 | how to form your own california corporation Issues Covered in Shareholder Buy-Sell Agreements (cont’d) allow the buyback of shares offered for sale by a shareholder to an outsider at the price the outsider is willing to pay). Different formulas are used, depending on the type of business and the profit history of the corporation. Agree­ ments adopted at the beginning of corporate life typically value shares at book value (the depreciated value of assets on the balance sheet of your corporation, minus liabilities). Later, after several years of continuing profits, corporations typically switch to a share valua­ tion method based upon a multiple of the corporation’s earnings (for example, the shares of a successful corporation may be valued at five times average annual earnings in the corporation’s buy-sell agree­ment).

Beyond Diversification: What Every Investor Needs to Know About Asset Allocation
by Sebastien Page
Published 4 Nov 2020

This paper explains the theory behind the building block model. Wilcox first states that Realized return = dividend yield + price change Then, he splits the “price change” term into “growth” and “valuation change,” such that Realized return = dividend yield + growth + valuation change For “growth,” he uses growth in book value. For the “valuation change” term, he calculates the change in the price-to-book ratio. Nowadays, investors use several variations of this model. For example, there are versions that use the P/E ratio, as well as different definitions for growth, such as growth in earnings, GDP, etc. There are many ways to forecast each of the components.

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This definition of sustainable growth is as basic as it gets. CFA charterholders will remember it as an important part of the program. It’s a good building block to forecast returns. Theory says that a company’s ability to grow its dividends depends on how well it can generate earnings for a given set of resources (book value), as well as how much of these earnings are reinvested in the company, presumably to finance growth projects. It’s finance 101, and again I suppose there’s nothing more practical than a good theory. In my backtests, when I replaced the economic growth model estimates with the sustainable growth rate for each country, the strategy’s performance jumped significantly.

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I had to scrub the data for outliers, especially P/E ratios and payouts around the 2000 and 2008 sell-offs, and adjust small caps data due to negative earnings, but the results were clear: P/CF won. Its average correlation with subsequent valuation changes was over 10% stronger than for the second-best ratio (P/B), and it won across seven out of nine asset classes (exceptions were small caps and non-US growth stocks).18 Cash flows are harder to “game,” or manipulate, than earnings and book values, and they’re more comparable across asset classes. In our survey process, we combine responses into the building block model, and we make the necessary adjustments for expected inflation. To finalize the forecasts, a committee of multi-asset investors as well as our group CIO will review and adjust the results.

British Rail
by Christian Wolmar
Published 9 Jun 2022

The sales during the 1980s brought in just under £1.4 billion, spread over the decade, of which all but around £200 million came from property sales. Useful, but hardly enough to plug the hole in BR’s finances. Moreover, as we have seen, the proceeds invariably failed to match, let alone exceed, the book value and therefore represented a theoretical loss. The shortfall on BREL compared with the valuation in the BR accounts may have been the most significant at £75 million, but neither of the workshops sold separately, Doncaster and Horwich, achieved even half their book value. In many cases, too, the expenses involved in the process significantly reduced the profits from the sales. This was the start of the period when the use of consultants and other contracted professionals became commonplace, a phenomenon that greatly added to the costs of seeing through these deals.

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Hoverspeed was the first part of BR’s shipping business to be put up for sale, and it was bought in February 1984 for a nominal sum by its own managers, who later sold it back to Sealink after it, too, was privatized. Although the incoming Tory government had initially denied that it intended selling Sealink, the ferry business was bought by Sea Containers in July 1984 for £66 million, well short of the book value of £108 million shown in BR’s accounts. The sale of BR’s subsidiaries – and subsequent privatizations in the wider economy – was driven by ideology. The need to get maximum value for taxpayers – or, indeed, any consideration for passengers – was secondary. The railway, which had over many decades developed short sea routes as part of a very successful integrated transport system, lost these connections, which, in addition to the French and Belgian Channel ports, included links to both sides of the Irish border and the Isle of Wight.

Money and Power: How Goldman Sachs Came to Rule the World
by William D. Cohan
Published 11 Apr 2011

There was also plenty of speculation about whether the $30 billion was correct, what percentage of the firm would be sold—generally thought to be between 10 percent and 15 percent—and how the proceeds of the offering would be divided up. There was also speculation about whether Goldman would trade at a premium to Morgan Stanley, which traded at four times book value, and Merrill Lynch, which traded at 3.5 times book value. With Goldman’s equity at roughly $6.3 billion, these were not idle questions, especially since the firm had had an excellent second quarter and seemed to be on track for $4 billion of pretax profits, its best year ever. Regardless of what the multiple of book value would be—4 times, or even higher—the current general partners stood to make a killing, with estimates ranging from $100 million for junior partners to more than $200 million each for Corzine, Paulson, and Roy Zuckerberg, then the longest-serving partner.

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Eleven years later, Weinberg reflected back on the 1986 partners’ meeting: “I always felt there was a terrific risk, and still do, that when you start going that way you are going to have one group of partners who are going to take what has been worked on for 127 years and get that two-for-one or three-for-one. Any of us who are partners at the time when you do that don’t deserve it. We let people in at book value, they should go out at book value.” The partners’ meeting lasted through the day and ended inconclusively. That night, the partners reassembled for a black tie party at Sotheby’s. “Each partner was engaged in a balancing act,” Endlich recounted, “an internal struggle to weigh the different factors that would affect his vote.

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Goldman believes its precision promotes transparency, allowing the firm and its investors to make better decisions, including the decision to bet the mortgage market would collapse in 2007. “Because we are a mark-to-market firm,” Blankfein once wrote, “we believe the assets on our balance sheet are a true and realistic reflection of book value.” If, for instance, Goldman observed that demand for a certain security or group of like securities was changing or that exogenous events—such as the expected bursting of a housing bubble—could lower the value of its portfolio of housing-related securities, the firm religiously lowered the marks on these securities and took the losses that resulted.

Getting to Yes: Negotiating Agreement Without Giving In
by Roger Fisher and Bruce Patton
Published 15 Mar 1991

If relying on objective standards applies so clearly to a negotiation between the house owner and a contractor, why not to business deals, collective bargaining, legal settlements, and international negotiations? Why not insist that a negotiated price, for example, be based on some standard such as market value, replacement cost, depreciated book value, or competitive prices, instead of whatever the seller demands? In short, the approach is to commit yourself to reaching a solution based on principle, not pressure. Concentrate on the merits of the problem, not the mettle of the parties. Be open to reason, but closed to threats. Principled negotiation produces wise agreements amicably and efficiently.

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Suppose, for example, your car is demolished and you file a claim with an insurance company. In your discussion with the adjuster, you might take into account such measures of the car's value as (1) the original cost of the car less depreciation; (2) what the car could have been sold for; (3) the standard "blue book" value for a car of that year and model; (4) 44 what it would cost to replace that car with a comparable one; and (5) what a court might award as the value of the car. In other cases, depending on the issue, you may wish to propose that an agreement be based upon: market value what a court would decide precedent moral standards scientific judgment equal treatment professional standards tradition efficiency reciprocity costs etc.

Quantitative Trading: How to Build Your Own Algorithmic Trading Business
by Ernie Chan
Published 17 Nov 2008

In the section on factor models earlier in this chapter, I discussed the Fama-French Three-Factor model, which suggests that return of a portfolio (or a stock) is proportional to its beta (if we hold the market capitalization and book value of its stocks fixed). In other words, you can increase return on a portfolio by either increasing its leverage or increasing its beta (by selecting high-beta stocks.) Both ways seem commonsensical. In fact, it is clear that given a low-beta portfolio and a high-beta portfolio, it is easy to apply a higher leverage on the low-beta portfolio so as to increase its beta to match that of the high-beta portfolio. And assuming that the stocks of two portfolios have the same average market capitalizations and book values, the average returns of the two will also be the same (ignoring specific returns, which will decrease in importance as long as we increase the number stocks in the portfolios), according to the Fama-French model.

Rentier Capitalism: Who Owns the Economy, and Who Pays for It?
by Brett Christophers
Published 17 Nov 2020

As if its privatization in 2013 was not contentious enough, the company poured fuel on the fire a few years later by selling three central London plots to developers to earn itself (and its shareholders) a tidy £400 million.5 Even after those sales, which achieved market prices of between six and eight times book value, the net book value of Royal Mail’s huge freehold estate was £845 million, suggesting a total market value upwards of £5 billion.6 The income raised by the likes of NFC and Royal Mail through such land sales can be understood as land (‘ground’) rent in capitalized form – that is, the present value of the future rental payments that the land could be expected to generate if it were let.7 For the pure land rentier, with no interest in using land for her own operational purposes, this is always the question: to let one’s property, thus earning future rents, or, effectively, to cash those future chips in now?

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As far back as 2007, it was reported that the company had been selling ‘about £100m of surplus land each year for the past five years’.10 Six years later, another report noted that a batch of further sales was expected to raise ‘more than £500m’.11 Since then, the property business – which combines site development, disposal, and letting to third parties – has continued to hum happily along, regularly posting annual profits – not revenues – in excess of £50 million: in 2016/17 the profit figure was £65 million; in 2017/18, when the company sold forty-four sites and exchanged contracts on a further five, it was £84 million.12 The most extraordinary aspect of this story is that all of this historic activity appears to have barely made a dent in National Grid’s colossal land bank, which at the time of writing still contains 645 sites with a net book value – not market value – of £2.3 billion.13 If National Grid is an infrastructure rentier, in other words, it is just as much a land rentier, and one so prodigious that it puts many of the specialist land rentiers discussed below in the shade. ____ The prominence of land rentiers is, of course, hardly a novel phenomenon in the UK.

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Like many other UK property rental businesses, Big Yellow converted to REIT status at the earliest opportunity, in 2007. The second company illustrating the ‘Other’ category is Tesco. Here, ‘last but not least’ is particularly apt: Tesco’s property portfolio is in fact more valuable than that of any of the land rentiers profiled thus far, with a net book value of some £16 billion. Certainly, Tesco is in significant measure an owner-occupier; but it is also a land rentier. For one thing, it lets, and earns substantial rents on, many of the sites it owns but which do not house a Tesco store; these number, it has been estimated, over 300.92 And then there is a more indirect form of rentierism.

A Mathematician Plays the Stock Market
by John Allen Paulos
Published 1 Jan 2003

A ratio that seems to be more strongly related to increased returns than price-to-dividends or price-to-earnings is the price-to-book ratio, P/B. The denominator B is the company’s book value per share—its total assets minus the sum of total liabilities and intangible assets, divided by the number of shares. The P/B ratio changes less over time than does the P/E ratio and has the further virtue of almost always being positive. Book value is meant to capture something basic about a company, but like earnings it can be a rather malleable number. Nevertheless, a well-known and influential study by the economists Eugene Fama and Ken French has shown P/B to be a useful diagnostic device.

Bulletproof Problem Solving
by Charles Conn and Robert McLean
Published 6 Mar 2019

This has been underscored by recent work on forecasting.8  Executives rank reducing decision bias as their number one aspiration for improving performance.9  For example, a food products company Rob was serving was trying to exit a loss‐making business. They could have drawn a line under the losses if they took an offer to exit when they had lost $125 million. But they would only accept offers to recover accounting book value (a measure of the original cost). Their loss aversion, a form of sunk‐cost bias, meant that several years later they finally exited with losses in excess of $500 million! Groupthink amongst a team of managers with similar backgrounds and traditional hierarchy made it hard for them see the real alternatives clearly; this is a common problem in business.

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These include paying attention to sunk costs, unreasonably high discount rates on future events, and treating losses and gains asymmetrically. One way to avoid these errors is to use good analytic techniques, including problem/model design, net present value analysis, marginal analysis, and use of cash flows rather than accounting book values. We will cover these in Chapter 5. Broaden your data sources: In every area of life, individual/workplace/society, there are core government and private data sets that everyone has access to. Sometimes these are terrific, but everyone has them, including your competitors, and there are often methodological issues in their collection.

Safe Haven: Investing for Financial Storms
by Mark Spitznagel
Published 9 Aug 2021

(There is the Biological Species Concept of interbreeding to define a species, but even then the thought of a Bernese pug is just cognitively dissonant.) Among investment strategies, the best example of this problem of classification is in value investing. Started by Benjamin Graham, it is about buying securities cheap compared to their intrinsic value—and good luck agreeing on the meaning of intrinsic value. In Graham's case, this mostly meant book value, or tangible value of a company's assets. For Graham, buying cheap to book often meant purchasing “cigar butts,” as Warren Buffett called them, or companies that were on their last puff and priced accordingly. These companies typically have very low profit margins and very low returns on invested capital.

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Index A Accuracy: in comparing SPX and safe haven portfolios, 135 with insurance, 93 with Kelly betting strategy, 86 risk mitigation strategy for, 196 and safe haven frontier, 186 Ad hoc hypotheses, 21 Affirming the consequent, 21, 163 Agnostic investing, 144–148 Agriculture: chemical industrial, 77, 154–155 regenerative, 77 Airplane trim tabs, 158 Alpha safe haven: cost‐effectiveness analysis of, 138–142 CTA trend‐following as, 175–178, 182–184 as dominated strategy, 139–140 and median CAGR of SPX portfolio, 132–135 in no‐crash bootstrap, 145–148 portfolio effect when mitigating systematic risk, 128 as prototype, 105–109, 120 reshuffling returns in, 142, 143 risk‐mitigation scoreboard for, 131 standardizing degree of risk in, 134 Also sprach Zarathustra (Nietzsche), 58 Amor fati, 199–201, 204 Aristotle: on blessing and happiness, 111 and deductive reasoning, 18 essentialist thinking of, 100–102, 111 on first principles, 13 as first real scientist, 101 naturalist tools of, 100 on probability, 23 on the whole, 124 Arithmetic average, geometric average vs., 40–41 Arithmetic average returns: arithmetic cost as change in, 136 for CTA returns, 176–178 as ensemble average, 75 geometric average returns vs., 40–42, 53–54, 77, 94–95 with insurance, 88–90, 94–95, 188 and Kelly optimal bet size, 84, 85 and median, 74 with Nietzsche's demon, 66–70 in Petersburg merchant trade, 48 in Petersburg wager, 34–35 reductionist understanding of, 125 of SPX portfolio with safe havens, 131–132 on US Treasuries, 172 when betting less of your stack, 79 Arithmetic cost: as change in arithmetic average returns, 136 in cost‐effectiveness analysis, 136–142 for CTA returns, 176–178 and efficiency, 202 for gold, 181 and Kelly optimal bet size, 84–86, 94 in no‐crash bootstrap, 146 in Petersburg merchant trade, 47 for real‐world safe havens, 184 and safe haven frontier, 186 tradeoff between geometric effect and, 152 when betting less of your stack, 79 when reshuffling returns, 143 Ars Conjectandi (Jacob Bernoulli), 30 Austrian School, 37 Auto racing, 155–157 B Babylonians, 40 Balanced portfolio, 172 Basel, Switzerland, 29 Basis risk, 169 Bastiat, Frédéric, 153–154 Bayesians, 24 Belief, 61 Bernoulli, Daniel: admonition and imperative of, 195 background of, 30–31 and concavity of curve, 54–56 emolumentum medium concept of, 35–39, 198 and geometric average, 39–42 and geometric mean maximization criterion, 81 Latané influenced by, 80 and math of compounding, 52–54 original Saint Petersburg Paradox, 31–34 Paris Academy Grand Prizes for, 31 second Saint Petersburg Paradox, 43–52, 115 Bernoulli, Jacob, 29–30, 67, 70 Bernoulli, Johann, 29–31 Bernoulli, Nicolas, 31–33 Bernoulli function, 37–39, 52 Bernoulli principle, 31 Bernoulli's expected value (BEV): in emolumentum, 38–39 as geometric average, 40–42 with Nietzsche's demon, 73 in Petersburg merchant trade, 48–49 Bias: hindsight, 113 opportunity cost neglect, 153 Biology: classification of living things in, 100–104 phenotypes in, 105 Bitcoin, 181, 182 Black swans, 16 Book value, 104 Bootstrap methodology: checking for blindspots in, 144–148 comparing 25 SPX returns with 25 safe haven returns, 128–132 to counteract naïve empiricism, 127 higher wealth in, 162–163 as nonparametric estimation, 128 for real‐world safe havens, see Real‐world safe havens reshuffling 25 SPX returns and 25 safe haven returns, 142–144 “with replacement,” 128–129 Brachistochrone problem, 29–30 Breiman, Leo, 80 Buffett, Warren: on buying during/after stock market crashes, 149–150 on diversification, 115–116 on losing money, 56 value investing by, 104 Bürgi (Swiss clockmaker), 40 C CAGR, see Compound annual growth rate Calculus of variations, 30 Capital base, 77 Cash, 170–175, 182–184 Casino, 23–24, 30–31, 65, 81–82, 87, 194 you are not a, 76, 82, 200 Cassandras, 111 CEA, see Cost‐effectiveness analysis Central banks, distortions built up by, 11 Change, within species, 102 Chemical industrial agriculture, 154–155 “Cigar butt” companies, 104 Classification: of living things, 100–102 of safe havens, see Taxonomy of safe havens Clinical trials, 129–136 Commodities shipping paradox, 43–52 Commodity trading advisor (CTA) strategies, 108, 175–178, 182–184 Complacency, 114 Compound annual growth rate (CAGR).

Expected Returns: An Investor's Guide to Harvesting Market Rewards
by Antti Ilmanen
Published 4 Apr 2011

(Value stocks and low-beta stocks are more exposed to bad beta which has a more permanent price impact. Thus they warrant higher premia; see Section 12.4.) MSCI Barra recently estimated a similar decomposition for their global equity index between 1975 and 2009 but they used book values rather than earnings as the measure of fundamental value. The annual gross return of 11.1% consisted of 4.2% inflation, 2.9% dividend income, 2.1% real book value growth, 1.5% valuation multiple expansion, and 0.4% residual interaction terms. The past decade (the 2000s) saw the fastest real growth (3.8%) but this was more than offset by valuation multiple contraction (—8.3%). 8.4 FORWARD-LOOKING (EX ANTE OBJECTIVE) LONG-TERM EXPECTED RETURN MEASURES Among forward-looking measures of equity market carry or value, dividend yield was the early leader.

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Cross-sectional opportunities are safer to exploit than market-directional opportunities—one can hedge away directional risk and diversify specific risk much more effectively. The value effect refers to the pattern that “value stocks”, those with low valuation ratios (low price/earnings, price/cash flow, price/sales, price/dividend, and price/book value ratios) tend to offer higher long-run average returns than “growth stocks” or “glamour stocks” with high valuation ratios. (These “price/something” ratios or their inverses are together sometimes called scaled price ratios.) Value investing has a long history wherein Benjamin Graham and David Dodd (1934) are seen as the intellectual godfathers.

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Academic analyses of PE returns include Ljungqvist–Richardson (2003), Cochrane (2005b), Kaplan–Schoar (2005), Lerner–Schoar–Wongsummai (2007), Ljungqvist–Richardson–Wolfenzon (2007), Lopez de Silanes–Phalippou–Gottschalg (2009), Kaplan–Stromberg (2009), Phalippou (2009), Phalippou–Gottschalg (2009), and Franzoni–Nowak–Phalippou (2010). On VC fund returns, see Cochrane (2005b) and Smith–Pedace–Sathe (2009). 12 Value-oriented equity selection • Value stocks with high book-to-market ratios and earnings yields (i.e., low prices relative to their book values and earnings) have outperformed growth stocks and the market both in the U.S. and globally over many decades (but can underperform sharply over short windows). • The strategy of sector neutrality (picking stocks that are cheap vs. industry peers) has given a better risk–reward tradeoff than the traditional approach to value investing which uses all stocks and allows industry bets

Unconventional Success: A Fundamental Approach to Personal Investment
by David F. Swensen
Published 8 Aug 2005

The Russell style-based benchmarks, which measure returns of growth-oriented or value-oriented portfolios, exhibit even greater turnover. Not only do style indices suffer the same size-induced modifications as their more broadly based cousins, but the benchmarks respond to changes in security-specific valuation characteristics. Russell uses price-to-book-value ratios and earnings-growth-rate estimates to rank companies along a growth-to-value continuum. As stock prices, book values, and earnings expectations change from year to year, so do the positions of companies in Russell’s growth-to-value rankings. During the annual reconstitution, Russell style indices encounter a multiplicity of turnover-inducing factors.

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See Chapter 4, Non-Core Asset Classes for a discussion of tax-exempt bonds. See pages 15–17 for Ibbotson’s and Siegel’s stock and bond return data. A price-earnings ratio measures valuation by comparing a company’s stock price per share to its earnings per share. A price-book ratio measures valuation by comparing a company’s stock price per share to its book value (assets minus liabilities) per share. Duration measures the price sensitivity of a bond to interest rates. Duration provides a better measure of a bond’s life than maturity, because duration incorporates a bond’s coupon payments and adjusts for the timing of cash flows. Yield to maturity represents the rate of return anticipated by holding a bond to its maturity date.

Other People's Money: Masters of the Universe or Servants of the People?
by John Kay
Published 2 Sep 2015

The difference between the value of Apple as a company and the value of its physical assets might be quantified as an ‘intangible asset’, the value of the ‘Apple brand’. But this reasoning is essentially circular. The ‘Apple brand’ is no more, or less, than the company, its products and its operations. The ‘brand value’ is simply a number calculated to make the stock market value of the company and the book value of its assets the same.2 To attach value to Apple stock far in excess of Graham’s book value is to recognise that a modern economy rests on design and ideas rather than on physical activity. Expectations of continued profitable success by Apple appear well founded, but expectations are necessarily subjective. The same reasoning was alleged to hold for Enron’s capitalisation of anticipated future earnings on energy contracts, and for optimistic assessment of the likely returns from mortgage-backed securities.

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The transition is partly the result of a change in the nature of modern business (Apple) and partly the result of the deliberate proliferation of complexity for the benefit of modern financiers and their hangers-on (Enron). In the last chapter I described how the value of Apple stock reflected not the negligible value of its operating assets – the book value that would have interested Ben Graham – but the expectation of its future profits. And this expectation is a real asset, created by the activities and record of the business, even if it is an asset of uncertain value. Apple’s future customers do not, however, report any matching liability, and perhaps they should not, since they will buy the company’s products only if they are delighted to do so.

Panderer to Power
by Frederick Sheehan
Published 21 Oct 2009

[I]t may well be that productivity is growing faster and that we just are not measuring output properly.”4 Greenspan explained the relationship between his inference and the stock market: “We have all seen, as I think you are aware, a number of industries in which the ratio of the stock market value to book value is much higher than one. . . . The stock market is basically telling us that there has indeed been an acceleration of productivity if one properly incorporates in output that which the markets value as output.”5 It is a brave man who declares “what the stock market is . . . telling us.” Another interpretation would consider the Netscape initial public offering two weeks before this meeting, calculate the Nasdaq’s 36 percent year-to-date rise, reflect on the Fed’s July decision to loosen money, and postulate that the stock market had decided the Fed was throwing fuel on the fire and it was time to make fast money.

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Greenspan’s interpretation was bound by an airtight equation: the stock market price is always correct. It is the known quantity. The economy is a menagerie of variables. In the years to come, Greenspan would introduce, interpret, reinterpret, reconstruct, and abandon particular variables. Here, at the unveiling, it is an understated book value that must be reconstructed by turning an expense into a capital investment. The infallibility of the stock market was most important to Greenspan, since he was retreating from responsibility, or even a discussion of asset bubbles. The entire miracle economy consisted of a series of abstractions: stock market prices; software output; productivity; a “conceptual economy.” 4 Ibid. 5 Ibid.

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The BBB-rated portion of the ABX.HE 07-01 dropped like a rock on the first day it was traded. The bonds in the index were still valued at par on bank balance sheets, mostly because CDOs were very rarely traded. Grant’s Interest Rate Observer thought the “rating agencies seem curiously detached” from the discrepancy between market prices and book values.25 The cocoon ruptured in the early summer of 2007. Bear Stearns slowly revealed that two of its aggressively managed hedge funds were worth very little. This was during June and July 2007. On June 15, 2007, Merrill Lynch, which had lent money to Bear Stearns (so that Bear Stearns could leverage its hedge funds), announced that it was seizing $400 million in collateral from the fund.26 After Merrill demanded its money back, some of the investors in Bear Stearns’s funds wanted to take their money out.27 What should they be paid?

Money Mavericks: Confessions of a Hedge Fund Manager
by Lars Kroijer
Published 26 Jul 2010

Mediobanca’s remaining core business was the main investment bank, but also included smaller business units like brokerage and asset management. Although it was by no means simple, we could try to estimate the value of these businesses using conventional valuation metrics like price/earnings, price/book value, etc. Once we had separated the actual business units from the general stock holdings, we could estimate how the overall value compared to the current stock value. Stub trades and holding company discounts If Mediobanca’s quoted holdings post-tax were valued at €9 in a €10 stock, the market was essentially saying that the rest of the banking businesses were valued at €1.

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We also took the view that the core banking business would not perform worse than its Italian banking peers, and kept a close eye on any available market data to prove this. This meant we had much less to know, even if our trade looked much more complicated than simply buying a Mediobanca share. Mr Nagel seemed to like our thinking, even if he could not encourage us to short the Generali stock. He offered a few technical improvements to our analysis, changing the book value of some holdings (relevant for capital gains taxation if Mediobanca was to sell a stake and incur taxes) and making a couple of comments about our method of tracking the value of the core business. There was an issue of some rights connected to the stake Mediobanca had in Ferrari, but that was a minor correction which, oddly, confirmed that there were no larger issues.

The Behavioral Investor
by Daniel Crosby
Published 15 Feb 2018

Basically, it’s bargain shopping. Turning to our three determinants of an enduring factor, theoretically, it makes sense that paying less is preferable to paying more. Empirically, there is now over a century’s worth of evidence data that value investing works. Lakonishok, Vishny and Shleifer examined the effect of price-to-book values on returns in, ‘Contrarian Investment, Extrapolation and Risk.’ They found that low price-to-book stocks (that is, value stocks) outperformed the high price-to-book glamour stocks 73% of the time over one-year periods, 90% of the time over three-year periods and 100% of the time over five-year periods.

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Ibbotson found that the stocks in the cheapest decile outperformed those in the most expensive decile by over 600% and the “average” decile by over 200% over that time period. In a similar study, Eugene Fama and Kenneth French examined all non-financial stocks from 1963 to 1990 and divided them into deciles based on their price-to-book values. Over the period of their study, the least expensive stocks returned almost three times as much as the most expensive. One of the most exhaustive examinations of the various value factors was conducted by James P. O’Shaughnessy in his excellent read, What Works on Wall Street. O’Shaughnessy used the now-familiar methodology of dividing stocks into deciles and observing returns from 1963 to the end of 2009.

The Invisible Hands: Top Hedge Fund Traders on Bubbles, Crashes, and Real Money
by Steven Drobny
Published 18 Mar 2010

(See Figure 12.2.) I had been looking for the moment to turn and go long ever since the fracture. I read every article possible looking for a reason, a catalyst, the right time, and I finally found it in valuations. Certain stocks were trading at a discount to book value. I reasoned that any slowing of the economic deterioration would send these stocks back to book value. Around the same time, many investors came to see us unexpectedly, saying, “How have you been making money? What is your secret? What is your recipe? You should be in cash! It’s the end of the world!” The overwhelming panic and fear we saw in investors, combined with everything else, helped push me to make the turn and go long.

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Figure 12.3 Dow Jones Industrial Average, 1987 SOURCE: Bloomberg. And your best trade ever? My best trade was long Softbank of Japan in 2005. That was extraordinary. In that particular case, the stock dropped and dropped during 18 months of slow deterioration, then exploded up. It was trading at a discount to book value and the valuation on tech stocks tends to go from discount to premium rather quickly. You never know what the trigger will be, but you know that something, someday, will happen. That something came in the summer of 2005, and over the next six months the stock went up more than fourfold. I owned half a billion dollars of converts, which doubled in price.

Money Changes Everything: How Finance Made Civilization Possible
by William N. Goetzmann
Published 11 Apr 2016

Prices for companies really began to soar after 1692—some reached twice their book value, which was many times more than their paid-in capital. While launching ventures for the “improvement of Husbandry and Trade” was a means to increase the fortunes of British citizens in the long run, speculating in the shares of these ventures could increase individual fortunes very quickly. The sudden demand for shares in the 1690s quickened the practiced investor pulse, even as it drew many new speculators. The first crash in Britain came in 1697, when shares dropped from their highs of double book value to less than half of book value. The drop in prices unmasked the stock-jobber and the risk of speculation and led to Defoe’s delightful diatribe.

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It would take years for the legal and regulatory system to catch up to this new culture—to decide just what companies could and could not do; to clarify the roles of managers, owners, and board members; to comprehend what kind of property company shares represented; and to determine whether the government needed to exercise control or allow firms free hand. The years following Defoe’s Essay would prove to be some of the most exciting in the history of finance. MONEY DOWN One way that companies were launched in the Projecting Age was through share subscriptions on a deferred payment plan. Although the book value of a share might be 100 pounds, a subscriber needed to put up only a small fraction (as little at 1%) to acquire the right to own it. On calendar intervals, the new company would call on the shareholder for capital until the share was fully “paid-in.” Meanwhile, the subscription right was tradable.

Heads I Win, Tails I Win
by Spencer Jakab
Published 21 Jun 2016

Graham was the teacher and has served as the inspiration for the most successful investor of all time, Warren Buffett, so it’s safe to say that his theories have worked pretty well in practice. A 2012 study by the Brandes Institute, “Value vs. Glamour: A Global Phenomenon,” updated and reinforced some earlier studies showing much the same thing Graham said but with a lot more algebra and statistical notation.4 It sliced stocks into price-to-book value by decile for five-year periods ranging from 1968 through 2012. The highest-multiple stocks, a trait associated with glamour, had average annualized returns of 6.5 percent. The other end of the spectrum, the cheapest decile, had annualized returns of 14.8 percent. Aside from price, another measure of glamour is popularity, particularly among those new to investing.

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See also United States: Treasury notes NPR, 233 Odean, Terrance, 22–23, 209 oil, 50, 100, 104, 109, 121, 166, 200–201, 205–6 Openfolio, 23, 195 options trading, 164–65, 192, 206, 208, 213–14 O’Shaughnessy, James P., 219–20, 229 Pagel, Michaela, 217 PalmPilots, 185 Parness, Michael, 210–13, 215 passive investing, 23, 41, 56, 115, 158–60, 166, 180, 219–20, 256–57 Paulson, John, 235 pension funds, 158, 174, 187–88 Pentagon, 145–46 pharmaceutical companies, 85–87, 89, 188 Philip Morris, 189–89 Phillips, Don, 152 portfolios, 12, 22–23, 56, 96, 191, 195 advice on, 27, 52–53, 62–64, 81–84 and cash, 50, 52, 63, 117 diversification of, 81–84, 95 equal-weighted, 136, 224–25 growth of, 38, 63–64, 76, 83 and market decline, 50, 52–54, 76 monitoring of, 217–18, 229 “monkey,” 106–9, 112, 225 randomly picked, 108, 225–26 rebalancing of, 38, 62–64, 74, 78–79, 82, 94–95, 249–50, 257 and risk taking, 74, 76, 156, 257 “robo,” 250 volatility of, 62–63, 81, 220 PowerShares FTSE RAFI US 1000, 223–24 Prechter, Robert, 124–25, 128, 143 price-to-book value, 193, 195 price-to-earnings (P/E) ratio, 89–95, 139–40, 145, 193, 219–20. See also cyclically adjusted P/E (CAPE) Princeton University, 83, 106, 168 prospect theory, 33 Protégé Partners LLC, 171 Prudent Speculator, 128 psychological issues, 2, 20–21, 33, 63, 229 “anchoring,” 184 “confirmation,” 70, 199 “illusion of control,” 22–23, 41–42 irrational exuberance, 69, 234, 239, 250 and losses vs. gains, 8, 72–73 and stock prices, 223 “put” options, 164–65, 214 Putnam Investments, 32, 39 Radio Corporation of America, 233 Rapuano, Lisa, 172–73 Raskob, John J., 238 real estate, 30, 237–38.

The death and life of great American cities
by Jane Jacobs
Published 1 Nov 1961

A slum owner in a congested area, where need for shelter is desperate and where the rents are what the traffic will bear, need not maintain the property. He pockets his annual depreciation allowance year after year, and after he has written down the book value of his slum property to zero, he then sells it at a price that capitalizes his high rent roll. Having made the sale, he pays a 25% capital gains tax on the difference between the book value and the sales price. He then acquires another slum property and goes through the same process again. [Saturation inspection by the Bureau of Internal Revenue of the income returns of owners of slum properties would] determine the amount of back taxes and penalties due as a result of their pocketing any improperly claimed depreciation allowance.

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What kind of public housing should it be?…The tenant’s rent should be increased with his increase in income and he should not be evicted as an over-income tenant. When his increasing rent reaches the point at which it will cover debt service, on liberal mortgage terms, then the property should be deeded to him at its book value and his rent converted into a mortgage payment. Such a program would move not only the individual but also his home back into the free market stream. This would block off the formation of public housing ghettos and it would curtail the empire protection complex which now surrounds the program… — Charles Platt, a New York architect, has long advocated the use of subsidized new dwellings in combination with older nearby buildings as a tool of uncrowding and thereby of two improvements in one.

Wealth and Poverty: A New Edition for the Twenty-First Century
by George Gilder
Published 30 Apr 1981

Large corporations have suffered from a stock market that evaluates their assets at only three-quarters of book value. They have thus been forced to turn to debt to finance expansion. But they have gained by buying back their own equity at bargain rates and by buying out smaller companies at prices far below the likely costs of reproducing their assets. Rather than build a new factory at inflated prices, many corporations have been able merely to buy an existing company that possessed the desired facilities, at 25 percent off book value. 6 Roger E. Brinner, “The Anti-inflation Leverage of Investment,” in Clarence C.

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There are only two possible explanations: these men were totally out of touch with the economy or they really were determined to nationalize American wealth, regardless of the consequences. In any event, the result was the withdrawal of six million investors from the stock market, the withering of opportunities for successful new issues by smaller companies from several hundred to a few handfuls yearly, and the collapse of the share value of corporations below the book value of their underlying assets. If investors could not buy the stock, other companies would. They had no reason to endure the risk and expense of building and equipping new facilities if they could buy existing plants more cheaply. So while populist politicians railed against corporate size and proposed new laws and policing powers against bigness, the government’s very own policies caused some twenty-one hundred corporate merger and acquisition announcements in 1978 alone.

The Bogleheads' Guide to Investing
by Taylor Larimore , Michael Leboeuf and Mel Lindauer
Published 1 Jan 2006

Income from the carpet-cleaning business and a positive cash flow from rental income give Ralph the wherewithal to invest in mutual funds. He is also maxing out his matching 401(k) at work, and is investing the maximum allowable amount in Roth IRAs for him and his wife. Incidentally, Ralph recently bought a three-year-old family sedan in excellent condition for a little more than half of its blue-book value. Is there any doubt Ralph is on the right path to becoming wealthy? In addition to providing investment income, side incomes make us less vulnerable to layoffs, downsizings, office politics, and obnoxious bosses. Just as it makes sound economic sense to diversify your investments, it makes sense to diversify your sources of income.

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The second most expensive asset most people own is their car. Although the law requires every licensed driver to carry bodily injury/ property damage liability coverage, most auto policies cover a lot more. Some features are necessary and some are a waste of money if you have other policies or an older car. For example, if you drive an old car with a low book value, consider dropping the comprehensive and collision coverage. Once again, the only good purpose for carrying insurance is to protect yourself from the catastrophes you can't afford. Other add-ons such as rental car reimbursement and towing hardly qualify as disaster prevention and can be skipped.

Infonomics: How to Monetize, Manage, and Measure Information as an Asset for Competitive Advantage
by Douglas B. Laney
Published 4 Sep 2017

Public companies are required to inventory, quantify, or assess the value of other assets, but not their information assets. Yet, these assets are either their primary source of revenue generation, or increasingly and tangibly contribute to their top line. Even intangible assets, such as copyrights, patents, and trademarks, are recognized and reported. Therefore, the growing disparity between corporate book values and market values is in large part due to the undisclosed value of information assets. While some executives may claim that information is not possible to quantifiably value, valuation models for other similarly non-depleting balance sheet intangibles are straightforward enough to apply. In chapter 12, we’ll show just how to do so.

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Which ones to digitize and how to price them were based on their expected market value.27 Another example of this approach in action is the work the IP consultancy Everedge mentioned earlier did with a business that was looking to get acquired. The client thought its most valuable assets were on the balance sheet. But instead of targeting buyers for the business (for which the client expected a 2x book value valuation), Everedge found buyers for its information assets, yielding a 32x EBITDA (earnings before interest, tax, depreciation, and amortization) deal size.28 Figure 11.7 Using Information Valuations to Drive Expanded Economic Benefits and Revenue Reduce Information Lifecycle Expense Remember in chapter 6 the discussion of the five (or six) “Rs” of sustainability?

Trading and Exchanges: Market Microstructure for Practitioners
by Larry Harris
Published 2 Jan 2003

Although it has many operating divisions, in many respects it is essentially a closed-end investment fund. Because Berkshire Hathaway is primarily an insurance company, its reported book value is based on the market values of its holdings rather than on historic costs of its holdings. The book value therefore is essentially the net asset value of the firm. Many people regard Warren Buffet as the most skilled investment manager of the late twentieth century. Since he took control of Berkshire Hathaway, its book value had appreciated 2,078-fold through December 2000. This corresponds to a compounded average growth rate of 23.6 percent per year. By comparison, the average annual total return (capital gains plus dividends) of the S&P 500 Index during this period was 11.8 percent.

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Gruber and Joel Rentzler, “New Public Offerings, Information, and Investor Rationality: The Case of Publicly Offered Commodity Funds,” Journal of Business 62, no. 1 (1989): 1-15. * * * * * * ▶ Warren Buffet Reconsidered In the 26 years between 1965 and 1990, the book value of Berkshire Hathaway increased by an average of 13.2 percent more than the total return on the S&P 500 Index. By 1990, Warren Buffet was widely acclaimed to be a highly skilled investment manager. During the next 10 years, the book value of Berkshire Hathaway increased only by an average of only 6.84 percent more than the total return on the S&P 500 Index. Although this performance is still quite impressive, it is not as impressive as the earlier performance.

Mastering ElasticSearch
by Rafal Kuc and Marek Rogozinski
Published 14 Aug 2013

Of course, we could run a get request like this curl -XGET 'localhost:9200/clients/client/1' to return the document representing our client and just take the value of the books field and run another query like this: curl -XGET 'localhost:9200/books/_search' -d '{ "query" : { "ids" : { "type" : "book", "values" : [ "1", "3" ] } } }' However, ElasticSearch 0.90 introduced the term, lookup filter, which allows us to run the two previous queries in a single filtered query, which could look like this: curl -XGET 'localhost:9200/books/_search' -d '{ "query" : { "filtered" : { "query" : { "match_all" : {} }, "filter" : { "terms" : { "id" : { "index" : "clients", "type" : "client", "id" : "1", "path" : "books" }, "_cache_key" : "terms_lookup_client_1_books" } } } } }' Please note the parameter _cache_key value.

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"hits" : { "total" : 2, "max_score" : 1.0, "hits" : [ { "_index" : "books", "_type" : "book", "_id" : "1", "_score" : 1.0, "_source" : {"id":"1", "title":"Test book 1", "category":"book", "price":29.99} }, { "_index" : "books", "_type" : "book", "_id" : "2", "_score" : 1.0, "_source" : {"id":"2", "title":"Test book 2", "category":"book", "price":39.99} } ] }, "facets" : { "price" : { "_type" : "range", "ranges" : [ { "to" : 30.0, "count" : 3, "min" : 11.99, "max" : 29.99, "total_count" : 3, "total" : 57.97, "mean" : 19.323333333333334 }, { "from" : 30.0, "count" : 1, "min" : 39.99, "max" : 39.99, "total_count" : 1, "total" : 39.99, "mean" : 39.99 } ] } } } Although, the results of the query were limited to only the documents with the book value in the category field, our faceting was not. In fact, the faceting was run against all the documents from the books index (because of the match_all query). So now we know for sure that ElasticSearch faceting mechanism doesn't take filter into account when doing calculations. What about filters that are part of the query, such as in the filtered query type, for example?

Practical Doomsday: A User's Guide to the End of the World
by Michal Zalewski
Published 11 Jan 2022

Both of you are buying insurance for the things you worry about, and nobody is trying to outwit the other guy. The stock market is one popular and unfairly maligned conduit for making sophisticated deals of this sort (and separately from this, a tool for making phenomenally bad financial decisions too). In the most basic sense, the deal is simple: you invest some money in a company whose book value is expected to track or outpace inflation, with the understanding that you stand to lose your investment if the company folds. Another way to offset inflation is to convert a significant proportion of your savings into assets that don’t lose value with the debasement of currency, such as collectibles, real estate, or silver and gold.

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But above all, the valuation of companies seldom hinges just on the snapshot of their assets and liabilities. Investors also factor in their expectations of growth. A dying company with shrinking revenues and growing debt is going to be much less attractive than its fast-growing competitor, even if its book value is about the same. In practice, many stable and established businesses, such as the manufacturers of industrial goods, often trade within earshot of their fundamental value. On the other end of the spectrum, the premiums on fast-growing technology stocks—Amazon, Apple, Google, Tesla, and so forth—can be exorbitant, essentially signaling that the investors expect phenomenal returns for many years to come.

Stigum's Money Market, 4E
by Marcia Stigum and Anthony Crescenzi
Published 9 Feb 2007

book-entry securities: Securities that are not represented by engraved pieces of paper but are maintained in computerized records. Securities that are not book-entry do not move from holder to holder but are usually kept in a central clearinghouse or by another agent. book value: The value at which a debt security is shown on the holder’s balance sheet. Book value is often acquisition cost plus or minus amortization/accretion, which may differ markedly from market value. It can be further defined as tax book, accreted book, or amortized book value. bp: Market abbreviation for basis point(s). Thus, 1 bp means 1 basis point, and 10 bp means 10 basis points. Sometimes denoted as bps. bridge financing: Interim financing of one sort or another.

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On a $1 million swap, a pickup of 25 bp is worth approximately $1,250 if earned over six months, half as much if earned over three months. Thus, such swaps are attractive. Many institutions, however, cannot do such a swap on an outright basis if the security they want to sell is trading, because of a rise in interest rates, below the book value their accountant assigns to it. Institutions in this situation have to resort to doing swaps indirectly. Instead of selling the maturing notes or bonds, they reverse them out to maturity to a dealer; that is, they borrow money against the securities. Then they invest that money in a higher-yielding instrument, often one that matches in current maturity the security being reversed out.

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The use of this tactic in portfolio management calls for willingness to book capital losses, and that willingness is a hallmark of every good portfolio manager. Realizing losses is, however, difficult to do psychologically; it is something a trader must discipline himself to do. One advantage of marking a portfolio to market each day is that it helps get the focus of those who buy and sell for the portfolio off book value. As one portfolio manager noted, “If market value declines today and you book to market, tomorrow you start at that market value. And your gain or loss will be a function of whether tomorrow’s price is better than today’s.” Said another, “If you mark to market, the past is gone. You’ve made a mistake, and the point now is not to make another one.”

Smart Machines: IBM's Watson and the Era of Cognitive Computing (Columbia Business School Publishing)
by John E. Kelly Iii
Published 23 Sep 2013

But what if you could ask more difficult questions, such as, “Can I afford to pay for the car?” with the implicit assumption that the app already knows you need to help out with your kid’s college tuition next year, or, “Is it worth fixing my car?” knowing that the app is tuned in to the mileage, maintenance record, and book value of your car. Suddenly, you can get not just handy information but useful insights that help you conduct your life more successfully. SCENARIO: THE COGNITIVE ENTERPRISE In the coming era of cognitive systems, organizations will acquire powerful new capabilities for using big data to make better decisions.

Irrational Exuberance: With a New Preface by the Author
by Robert J. Shiller
Published 15 Feb 2000

Many articles in academic finance journals show this, not by colorful examples but by systematic evaluation of large amounts of data on many firms. For example, Sanjoy Basu found in 1977 that firms with high price-earnings ratios tend to do poorly subsequently, and Eugene Fama and Kenneth French in 1992 found the same for stocks with high price-to-book value.14 Werner De Bondt and Richard Thaler reported in 1985 that firms whose price has risen a great deal over five years tend to go down in price in the next five years, and that firms whose price has 180 ATT EMPTS TO R AT IONALIZE EXUBER ANC E declined a great deal over five years tend to go up in price in the succeeding five years.15 (In Chapter 6 we saw that a similar tendency has held for national stock markets around the world.)

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See also Analysts, optimistic forecasts by; Baby Boom; Business, cultural factors favoring success of; Capital gains taxes; Defined contribution pension plans; Foreign economic rivals, decline of; Gambling, rise of opportunities for; Inflation, decline of; Internet; Media, expansion of business reporting; Money illusion; Mutual funds; Republican party; Trade, expansion of volume Prescott, Edward, 262n1 Pressman, Steven, 245n29 Price-earnings ratios, 5–14, 17, 50, 195; Baby Boom and, 26; earnings unaffected by, 180–82; Internet and, 19; long-term returns and, 10–14; other periods of high values, 8–10; in Philippines, 124; poor performance and, 179; quantitative anchors and, 138; in Taiwan, 125 Price-insensitive selling, 91 Prices: absence of news on big changes in, 78–79; following significant world events, 75–77; largest recent five-year decreases, 122t; largest recent five-year increases, 121t; largest recent oneyear decreases, 120t, 124; largest recent one-year increases, 119t, 123, 124, 125–26; long-term movements of, 226; predicting changes in, 252–53n12; quantitative anchors and, 137–38; as random walks, 171, 172–73, 199; short-term IN D E X movements of, 226, 227; sources of data for, 235–36n2; statistical tendency for reversals in, 130–32; stories associated with largest changes, 123–28. See also Dividendprice ratios; Efficient markets; Feedback systems; Price-earnings ratios Price-to-book value, 179 Producer Price Index (PPI), 235–36n2 Professional investors. See Institutional investors Prohibition, 42, 107 Proxy assets. See Macro securities Prudential Securities, 97 Psychological anchors, xvi, 135–47, 253–55n1–21; contingent future decisions and, 146–47; moral, 136, 138–42; overconfidence and intuitive judgment and, 142–46; quantitative, 136–38, 140 Public figures, 74, 203–4 Quantitative anchors, 136–38, 140 Questionnaires.

Capital Ideas Evolving
by Peter L. Bernstein
Published 3 May 2007

Other academics have tried to “fix” CAPM in one way or another. The most notable effort in this direction has been by Eugene Fama of the University of Chicago and Kenneth French of the Tuck School at Dartmouth, in 1992, when they identified two new independent variables in addition to the market: the ratio of book value to market value, and a stock’s total valuation in the marketplace. Empirical tests of Fama’s and French’s work indicated that returns for “value” stocks and small stocks tended to be higher than CAPM’s original beta alone would predict, and returns for growth stocks and large-capitalization stocks tended to be lower.5 Even earlier, in 1966, Barr Rosenberg studied covariance models and introduced the notion of adding “factors” to the market return to explain the valuation of individual securities (see Capital Ideas, Chapter 13, “The Accountant for Risk”).

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Since then, Fama has become a principal in a major mutual fund company and, in cooperation with his frequent co-author Kenneth French of Dartmouth’s Tuck School, he has enhanced the empirical performance of the Capital Asset Pricing Model by adding two new variables—size of market capitalization and the ratio of price to book value. bern_bins.qxd 3/23/07 10:44 AM Page 7 Jack Treynor’s bold model for asset pricing in 1964 closely resembled Sharpe’s but was never published. In 1973, Treynor and Fischer Black established the groundwork for today’s strategy of portable alpha, asserting that “two managers with radically different expectations regarding the general market but the same specific information regarding individual securities will select active portfolios with the same relative proportions.”

The Great Reversal: How America Gave Up on Free Markets
by Thomas Philippon
Published 29 Oct 2019

Figure 3.5 shows the total payout rates for US-incorporated firms included in our Compustat sample, both dividends and share buybacks. The payout rate has increased substantially, primarily driven by share buybacks. The increase is so large that firms are now repurchasing as much as 3 percent of the book value of their assets each year. We now have two sets of facts: market shares have become more concentrated and more persistent, and profits have increased. The natural next question to ask is whether the two sets of facts are connected: do we see higher profits precisely in industries where we see more concentration?

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It does not want to incur large adjustment costs. It will invest 2 percent in the first year. Next year (assuming no news), its q will be 110 / 102, so it will invest 0.08 / 5 = 1.6 percent. The year after that, its q will be 110 / 103.6, and it will invest 1.2 percent. It will take a few more than four years to reach a book value of 105. It will never actually reach 110, but it will get closer each year. We have assumed so far that the firm has only issued stocks, but Tobin’s insight also applies when the firm is financed with both stocks and bonds. In that case you need to add the value of the stocks and the value of the bonds to get the total market value of the firm.

The Price of Time: The Real Story of Interest
by Edward Chancellor
Published 15 Aug 2022

The result was the United States Steel Corporation, whose very name flaunted its market dominance. The Corporation, as it was known on Wall Street, was not just the world’s largest steel producer, its capitalization was greater than any other company. When it went public, US Steel was capitalized at $1.4 billion, more than double the book value of its plants and other assets.7 This ‘over-capitalization’ anticipated profits that would accrue to its monopoly, and also signalled that at a time of low interest rates investors placed a higher value on those future profits. Most of the profits made from forming trusts, however, fell to the denizens of Wall Street.8 The trick was to acquire a company on leverage, ‘water’ the stock (increase its capitalization), merge operations with other concerns and float the amalgamated business at a higher price on the stock market.9 Investors were provided with cheap stock loans to boost demand for the shares at the IPO.

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Post-tax profits of $26 million divided by half as many shares produce 10.3 cents of EPS, an increase of nearly 50 per cent. Given that investors appreciate EPS growth, the stock is re-rated to 17.5 times earnings. As a result, the share price climbs above $1.80, up more than 70 per cent, and the shares are now trading at a substantial premium to book value. The value of executive stock options increases by more than $35 million. Although the chief executive has not developed any new products, increased investment or done anything else to improve the company’s long-term prospects, she shares in this bonanza. And why not? FinEng’s return on equity has climbed to 10 per cent, up 3 points.

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The Wells Fargo/Gallup Investor and Retirement Optimism Index was also at its highest level since the Dotcom bubble; see Rob Arnott, Bradford Cornell and Shane Shepherd, ‘Yes. It’s a Bubble. So What?’, Research Affiliates, April 2018. 16. By the end of 2017, the US stock market was trading at a record 9.7 times tangible book value. A year later, US non-financial stocks were roughly two-thirds above their historic average on a valuation measure known as Tobin’s q, which compares share prices to the cost of building companies from scratch. The valuation of S&P 500 companies relative to their 10-year average earnings was at double its historic average level (http://www.econ.yale.edu/~shiller/data.htm).

Debt of Honor
by Tom Clancy
Published 2 Jan 1994

The precipitous decline of the Japanese stock market had threatened to put calls on the large margin accounts, and made some businessmen think about selling their land holdings to cover their exposures. With that had come the stunning but unsurprising realization that nobody wanted to pay book value for a parcel of land; that although everyone accepted book value in the abstract, actually paying the assumed price was, well, not terribly realistic. The result was that the single card supporting the rest of the house had been quietly removed from the bottom of the structure and awaited only a puff of breeze to cause the entire edifice to collapse—a possibility studiously ignored in the discourse between senior executives.

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Small already—the entire nation was about the size of California, and populated with roughly half the people of the United States—their country was further crowded by the fact that little of the land was arable, and since arable land also tended to be land on which people could more easily live, the major part of the population was further concentrated into a handful of large, dense cities, where real-estate prices became more precious still. The remarkable result of these seemingly ordinary facts was that the commercial real estate in the city of Tokyo alone had a higher "book" value than that of all the land in America's forty-eight contiguous states. More remarkably still, this absurd fiction was accepted by everyone as though it made sense, when in fact it was every bit as madly artificial as the Dutch Tulip Mania of the seventeenth century. But as with America, what was a national economy, after all, but a collective belief?

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Those savings went into banks, in such vast quantities that the supply of capital for lending was similarly huge, as a result of which the interest rates for those loans were correspondingly low, which allowed businesses to purchase land and build on it despite prices that anywhere else in the world would have been somewhere between ruinous and impossible. As with any artificial boom, the process had dangerous corollaries. The inflated book value of owned real estate was used as collateral for other loans, and as security for stock portfolios bought on margin, and in the process supposedly intelligent and far-seeing businessmen had in fact constructed an elaborate house of cards whose foundation was the belief that metropolitan Tokyo had more intrinsic value than all of America between Bangor and San Diego.

Exponential: How Accelerating Technology Is Leaving Us Behind and What to Do About It
by Azeem Azhar
Published 6 Sep 2021

Only 16 per cent of the S&P 500’s value could be accounted for by tangible assets, and 84 per cent by intangibles.23 This ratio skews even further when you look at the largest firms in the world: the exponential superstars. In 2019, the book value of the five biggest Exponential Age firms – Apple, Google, Microsoft, Amazon and Tencent – ran to about $172 billion. But this measure emphasises a firm’s tangible assets and largely ignores its intangibles. To figure out a firm’s book value you tally up a company’s cash, what it is owed by customers, and its physical assets, and then subtract its liabilities. The stock market valued those firms, at the time, at $3.5 trillion.

Palace Coup: The Billionaire Brawl Over the Bankrupt Caesars Gaming Empire
by Sujeet Indap and Max Frumes
Published 16 Mar 2021

Apollo, its core strength in financial engineering, would take on the right side of the balance sheet, where the liabilities and equity details of the company were listed. Marc Rowan once said, “It’s all about if A equals L + E,” referring to the famous accounting identity that states that a company’s book value of assets is equal to the sum of its liabilities and its equity. “If your assets are worth more than your liabilities you will find someone to bridge the liquidity gap.” In 2008, operating profit was down already a third from 2007. Financial leverage worked both ways. If the company performed well, Apollo, TPG, and the co-investors could have easily doubled their $6 billion equity investment.

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What was clear to Caesars bean counters was the accounting damage that the transfer of Linq and Octavius had created. Diane Wilfong, the Caesars controller, wrote an email to senior management in December of 2013 saying that the deal would “stand out like a sore thumb on the OpCo financials.” The book value of the two properties was $550 million, and selling them seemingly for $150 million was going to blow a hole in the equity section of the Caesars balance sheet. Rowan and Sambur were steadfast in their support for the CERP deal, which they believed solved the puzzle of refinancing the $4.7 billion of PropCo debt.

Age of Greed: The Triumph of Finance and the Decline of America, 1970 to the Present
by Jeff Madrick
Published 11 Jun 2012

To those who were confident the economy would someday return with vigor, stocks looked like a fire sale. The stock price of a company was now often equal to or lower than the book value, or the value of the assets on the company’s books less its liabilities. In other words, one could often sell off subsidiaries or plant and equipment for more than investors were willing to pay for a company in the stock market. In 1974, the average price of a stock in the S&P 500 was trading roughly 30 percent below such book value. But the ignominious failure of the 1960s conglomerate wave made Wall Street especially cautious. “Certainly in the late 1960s they got excessive.

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Inco’s second target was ESB, formerly Electric Storage Battery, a maker of car batteries. ESB also had a dry cell battery, known as Ray-O-Vac, which Inco believed could compete with the popular Duracell and Eveready brands if the stodgy company invested more in marketing and research. ESB’s price-earnings multiple had fallen to 6, its stock traded well below its book value, and, in fact, even below its net working capital per share—that is, its cash, inventories, and receivables less short-term liabilities. To aid in its pursuit, Inco was determined to acquire ESB, whether its management agreed or not. Inco approached Morgan Stanley, which had never managed a hostile acquisition before.

Scikit-Learn Cookbook
by Trent Hauck
Published 3 Nov 2014

Measures profitability that reflects the company's age and earning power. T3 = Earnings Before Interest and Taxes / Total Assets. Measures operating efficiency apart from tax and leveraging factors. It recognizes operating earnings as being important to long-term viability. T4 = Market Value of Equity / Book Value of Total Liabilities. Adds market dimension that can show up security price fluctuation as a possible red flag. T5 = Sales/ Total Assets. Standard measure for total asset turnover (varies greatly from industry to industry). 147 www.it-ebooks.info Classifying Data with scikit-learn From Wikipedia: [1]: Altman, Edward I.

Conspiracy of Fools: A True Story
by Kurt Eichenwald
Published 14 Mar 2005

Hell, if they had stuck the money in a bank account earning 3 percent, the earnings would have been higher! Numbers whirred through his mind. Two billion dollars in Azurix, flushed away in the morning. Seven billion in international, flushed away in the afternoon. He held up his hands. “We’ve got seven billion of book value on this stuff. What’s it worth if we sell it?” The question hit the room like a percussive explosion. “Oh, it’s worth a lot more than that,” Sutton said. Skilling slapped the table. “Fine,” he snapped. “Then that’s what we’ll do.” He looked around the room. “I want this stuff fucking sold!” he snapped.

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The planes had been part of a deal begun in 1997, called Cochise. In essence, Enron had shuffled a bunch of paper to create expected future tax deductions. Then—for lack of a better term—it “marked to market” those expectations, reporting the future deductions as current income. Using the tax credit the deal created reduced the book value of the planes from $46.7 million to zero. So in the final days of the quarter, Enron sold the planes for $36.5 million to an entity controlled by Bankers Trust. Now the energy company could report every penny of its airplane sale as income. But the bank wouldn’t be stuck with the planes for long.

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He wanted Enron to inject more cash into the new entity; he wanted Badr El-Din to leave it relatively debt-free. By August, the outlines of a deal had been prepared. The Middle Eastern investors would assign the assets a value of $7.1 billion and purchase an 80 percent interest, with the rest staying with Enron. Expenses included, it translated into a loss from book value, but Skilling was ready to take the lumps. Now, he thought, it was time to teach Enron’s directors a lesson about their mistakes. Maybe then he could drive every remnant of Rebecca Mark’s businesses out of Enron once and for all. Skilling’s voice was calm as he addressed the Enron board about the status of Project Summer.

IBM and the Holocaust
by Edwin Black
Published 30 Jun 2001

Milner mailed Watson a long, detailed letter explicating the adverse Price Waterhouse report, searching for silver linings, parsing Heidinger’s contract language, and ultimately trying to construct loopholes around the inevitability of either paying Heidinger dividends or buying part of his stock. Milner conceded that buying just one of Heidinger’s shares would expose the subsidiary as American-controlled.114 Milner explored all the possibilities. “If he [Heidinger] died and the stock was offered to IBM, in accordance with his contract, the higher book value combined with the earnings of the company would probably force a high valuation of the stock,” asserted Milner. Maybe the company could pay the elderly Heidinger in ten annual installments? Could Dehomag purchase Heidinger’s stock with blocked marks as an internal obligation? Milner offered a range of options, none of them promising.115 It seemed to be a no-win dilemma for IBM.

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If competition supplanted IBM, his stock holdings could soon become worthless. By early March 1941, Heidinger agreed to a new settlement—RM 2.2 million in exchange for giving up his preferential stockholder status. He would still own his shares, and those shares could still be sold only to IBM upon his departure from the company—but the price would be the book value.25 Reich economic bureaucrats approved because the transaction wasn’t as much a sale as a reduction in status—and Heidinger was handsomely compensated for his various overdue bonuses.26 But Veesenmayer was still insistent that IBM relinquish its majority or face a newly created cartel. And now the cartel had a name: Wanderer-Werke.

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While a minority interest exists in Germany, such minority interest was granted as an inducement to the managers of the company; but they are not shareholders in the general sense of the term, because they are not free to sell their shares, but can sell them only to the company and only for their book value. They were retaining the share only during their holding a leading position in the company. Only one remains today. Mr. Heidinger died in 1944 and Mr. Rottke is reported to have died in a Russian camp.” 98 Ironically, the one remaining shareholder was Hummel himself. Before the end of 1947, IBM would finally receive a Treasury License to repurchase the stock of Rottke, Heidinger, and Hummel, thus regaining 100 percent ownership of its German unit.

Beyond the Random Walk: A Guide to Stock Market Anomalies and Low Risk Investing
by Vijay Singal
Published 15 Jun 2004

In the words of Eugene Fama, “[I]nferences about market efficiency can be sensitive to the assumed model for expected returns” (Fama 1998, 288). Other models exist using alternate measures of risk derived from statistical methods and historical returns. Researchers have also discovered that stock return depends on such factors as size, the ratio of market value to book value, beta, momentum, and so on. However, these are empirical returns that do not necessarily have strong theoretical support. Further, there is no guarantee that these factors will continue to have explanatory power in the future. So, the question remains: what is IBM’s normal return? There is no exact and generally accepted measure of expected return.

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First, firms may repurchase stock when they believe the firm’s stock is undervalued by the market. Second, firms may use repurchases as a way of returning excess cash to the stockholders. The undervaluation explanation is better supported by the evidence. As value firms are likely to be more undervalued than growth firms, their overperformance should be higher. Indeed, firms in the highest book-value-to-market-price quintile outperform their peers by about 45 percent over four years after the repurchase.4 As with other long-term studies, these studies suffer from the usual criticisms. Though there are excess returns, those returns come primarily from small firms and are not statistically significant.

How Markets Fail: The Logic of Economic Calamities
by John Cassidy
Published 10 Nov 2009

In one of them, which The Journal of Finance published in June 1992, he and Kenneth French, of Dartmouth, showed that between 1963 and 1990, stocks that traded at low prices relative to the value of the physical and intellectual assets of the company (value stocks) systematically outperformed stocks that traded at high prices relative to book value (growth stocks). In another paper, using monthly data from 1941 to 1986, Fama and French found that more than a quarter of the variability in total market returns could be explained by examining the initial dividend yield alone. Roughly speaking, when the dividend yield was low, stocks tended to do badly in subsequent years; when the dividend yield was high, stocks did well in subsequent years.

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For example, when a bank sells some Treasury bonds and buys some volatile technology stocks, its VAR rises by a certain amount, say $10 million, giving its management a precise read on how much extra risk it has taken on. “In contrast with traditional risk measures, VaR provides an aggregate view of a portfolio’s risk that accounts for leverage, correlations, and current positions,” Philippe Jorion, a professor of finance at the University of California, Irvine, wrote in his 1996 book, Value at Risk: The New Benchmark for Controlling Market Risk, which helped to popularize the methodology. “As a result, it is truly a forward looking risk measure.” According to Wall Street folklore, the concept of value-at-risk originated in the late 1980s, when, following the stock market crash of 1987, the late Sir Dennis Weatherstone, J.P.

The Myth of the Rational Market: A History of Risk, Reward, and Delusion on Wall Street
by Justin Fox
Published 29 May 2009

Why they did that was a question for which finance professors had no good answer, but Merton was right that there was another way to look at the discrepancy. Financial market prices are just about the cleanest, hardest-to-manipulate data in all of economics. If they were more volatile than fundamentals like dividends, earnings, revenue, or book value, Merton argued, maybe the problem was with the fundamentals: If…the rationality hypothesis is sustained, then instead of asking the question “Why are stock prices so much more volatile than (measured) consumption, dividends, and replacement costs?” perhaps general economists will begin to ask questions like “Why do (measured) consumption, dividends, and replacement costs exhibit so little volatility when compared with rational stock prices?”

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The success of his consulting firm Barra had made him the most prominent salesman of the academic approach to investing, but he had never preached that the market couldn’t be beat—just that its risks could and should be quantified. Not long before launching Rosenberg Institutional Equity Management in 1984, he coauthored a paper titled “Persuasive Evidence of Market Inefficiency,” which argued that one could reliably outperform the market by buying stocks with low price-to-book-value ratios and those that had just had a particularly bad month.15 Rosenberg’s firm set out to do just that. Fischer Black’s 1984 switch from MIT to Goldman Sachs was more surprising to those in academia, but he too had already been straying from the efficient markets gospel. Some of his work at Goldman involved devising products that the firm could sell—like its own version of portfolio insurance.

The Last Tycoons: The Secret History of Lazard Frères & Co.
by William D. Cohan
Published 25 Dec 2015

"This being said, Antoine Bernheim has been totally faithful to the firm and me." Bollore's unprecedented bet on shaking up the Lazard holding companies in the summer of 1999 was, first, born of a desire to make a lot of money. He had figured the share price of the holding companies valued Lazard at an incredible 75 percent discount to its book value, an arbitrage opportunity par excellence. As a secondary matter, Bollore had focused on Lazard's arcane corporate governance, just as he did with both the Mediobanca and the Rothschild investments: as the European Common Market continued to evolve and mature, the rules relating to corporate ownership would begin to more closely resemble the far simpler paradigm in the United States.

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"I was not totally against a deal with Lehman," he said. "You know I am very traditional, and Lehman was the second place I ever worked at. It's the same kind of firm, traditionally, as Lazard. So why not? But the truth is that you simply have to look at their price, and their P/E multiple, and their book value multiple. To do any deal is impossible. It's impossible. They would have been delighted at a third of the price, or let's say half the price, but they were completely unable to do more. I mean, because they would have been killed with dilution. Killed. So it couldn't work." Taking the hint, Loomis wrote Fuld a letter suspending the discussions.

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Over that first weekend after the IPO, Barron's, one of the bibles of Wall Street, roundly criticized the deal under the headline "King's Ransom for Lazard" with a caricature of Bruce striking a particularly Napoleonic pose. "There are numerous negatives associated with the Lazard deal," the magazine stated. "The company has the dubious distinction of being one of the few financial firms ever to come public with a massively negative book value and junk-grade bond ratings from two major credit-rating agencies. Other drawbacks include Lazard's home in Bermuda, whose laws provide less protection to public shareholders than those in the U.S." The article went on to catalog the flaws of the deal and its high price tag nonetheless. "The Lazard IPO shapes up as a great deal for Wasserstein, former Lazard partners and current managing directors," Barron's concluded.

Bike Snob
by BikeSnobNYC
Published 5 May 2010

Ah, of course, that’s an excellent reason. See, they don’t give cars to just anybody. Only really important people get to drive. Plus, you’ve got to take a test to drive a car, and it’s so hard that they don’t let you do it until you’re in your teens. Never mind that these people are usually driving cars with Blue Book values significantly lower than what our bicycles would fetch on eBay; either that, or they’re driving some really expensive contraption that any sane person would be embarrassed to be paying for, like a Cadillac pickup truck, which allows you to look like an idiot at the country club and at the ranch.

Marxian Economic Theory
by Meghnad Desai
Published 20 May 2013

p (3) Since the ratio of depreciation (and user cost) to stock of capital could be varying, Gillman computed the rate of profit on stock of capital. The stock of fixed capital was measured as "the values of plant and equipment taken at their reproduction costs at'current prices net of depreciation." 3 These differ from book values since these are often in historical value. Using these figures, there is a decline in the rate of profit for 1880-1919 but no trend from 19l9-l95Z. These are listed in columns 3a - 3c. Including the stock of fixed capital and circulating capital - inventories - similar results are obtained as in columns 3a - 3c.

The Psychology of Money: Timeless Lessons on Wealth, Greed, and Happiness
by Morgan Housel
Published 7 Sep 2020

Graham advocated purchasing stocks trading for less than their net working assets—basically cash in the bank minus all debts. This sounds great, but few stocks actually trade that cheaply anymore—other than, say, a penny stock accused of accounting fraud. One of Graham’s criteria instructs conservative investors to avoid stocks trading for more than 1.5 times book value. If you followed this rule over the last decade you would have owned almost nothing but insurance and bank stocks. There is no world where that is OK. The Intelligent Investor is one of the greatest investing books of all time. But I don’t know a single investor who has done well implementing Graham’s published formulas.

Wall Street: How It Works And for Whom
by Doug Henwood
Published 30 Aug 1998

While it does a terrible job explaining investment, q seems to predict the stock market and explain mergers. This isn't surprising; q is another way of doing what Wall Street analysts call the market-to-book ratio — the MARKET MODELS market value of a firm's stock compared with its net worth. Firms selling below their book value are thought to be bargains, while firms selling well over book — "well over" being an admittedly spongy concept — are overpriced. The second of the q charts shows that high q ratios have portended years of poor performance, and low ^values, years of bubbliness. This confirms the notion of so-called "value investors" like Ben Graham and Warren Buffett that it pays to buy stocks when they're "cheap," and shun or sell them when they're not.

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Also, the relation between beta and return (with more volatile stocks showing higher returns), which was first posited in the 1960s and 1970s, breaks down when applied to more recent price history. Either the first WALL STREET "discovery" was anomalous, or it ceased to work as the investing public became aware of the technique. A 1992 paper by Fama and Kenneth French that reported very damaging evidence for the beta model — that firm size and the ratio of market value to book value are better predictors of return than relative volatility — excited the ideologists at The Economist (.1992c) to a defense. "Should analysts stop using the CAPM? Probably not," the magazine declared in its best ex cathedra tone. And why not? Because while Fama and French "have produced intriguing results, they lack a theory to explain them."

All the Money in the World
by Peter W. Bernstein
Published 17 Dec 2008

He added many more companies37 (some private, including Executive Jet, which he bought in 1998 for $725 million) and rode the fad among the rich to own private planes. By 2005 Berkshire Hathaway owned more than sixty-five businesses, but still was mostly an insurer, with a $49 billion float to invest. Its book value has grown38 21.5 percent a year, compounded, since 1965. Not that Buffett doesn’t have39 his share of horror stories. Three episodes might have hurt him badly. The first came in 1954, when his net worth was about $54,000, and he was nailed in a short squeeze, an unexpected surge in the price of a stock he’d shorted that could have cost him all his money.

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“If I wanted to”: Vanessa Grigoriades, “Billionaires Are Free,” New York, Nov. 6, 2006. 36. He invested most of that float: Smith, The Wealth Creators, pp. 140–58. 37. He added many more companies: Executive Jet data comes from Anthony Bianco, “The Warren Buffett You Don’t Know,” BusinessWeek, July 5, 1999, cover story. 38. Its book value has grown: This figure is Warren Buffett’s, from his 2005 annual chairman’s report to shareholders, at berkshirehathaway.com/letters/2005ltr.pdf. That report mentions a $49 billion float in 2005. For information on Berkshire Hathaway subsidiaries, see quote.morningstar.com/Quote/Quote.aspx?ticker=BRK.B. 39.

Endless Money: The Moral Hazards of Socialism
by William Baker and Addison Wiggin
Published 2 Nov 2009

JP Morgan Chase (prior to bailing out Bear Stearns) had equity measuring 7.7 percent of assets, but, this net of goodwill and intangibles was only 4.5 percent. Moreover, in footnotes to its year-end 2007 balance sheet, it disclosed some $77 trillion of gross notional value of derivatives. At mid-year 2008, Citigroup traded at less than 70 percent of its book value, which after subtracting goodwill and intangibles was less than 3 percent of its assets. By the end of the year Citigroup was counting some $44 billion of deferred tax assets as over half of its Tier 1 capital, even though this sum merely represents the present value of the tax benefit its losses would have if they might be used at a later time to shield profits.

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To do so would require an estimated haircut to book equity of some $46 billion for Fannie Mae and $29 billion for Freddie Mac. This compares with stated equity in March 2008 of just $39 billion for Fannie Mae and $16 billion at Freddie Mac. Since during 2008 these stocks traded at discounts to their book value, the dilution to existing shareholders needed to clean up this mess would have been massive, even assuming that further deterioration of the firm’s assets would not occur. However, knowing what we know now, it is unlikely enough equity could have been raised to offset losses at Fannie and Freddie.

After the Music Stopped: The Financial Crisis, the Response, and the Work Ahead
by Alan S. Blinder
Published 24 Jan 2013

None of them relished the thought of facing a Merrill Lynch bankruptcy. Merrill’s shareholders may not have been delighted, at first, at the $29 per share price they received (in BofA stock). After all, Merrill shares had sold above $47 as recently as April. But $29 a share was 70 percent above the stock’s September 12 closing price and 38 percent above Merrill’s book value. Most observers thought Thain and Fleming struck a good deal—and, conversely, that BofA’s Lewis struck a bad one. What happened later made Thain’s deal look even better. Merrill Lynch lives on today, including the famous name and the fifteen-thousand-strong thundering herd, as the wealth-management division of Bank of America.

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Bankers are required by law to maintain a minimum ratio of capital to risk-weighted assets. (Never mind risk weighting; that’s a separate complicated story. Just think of it as 10 percent in the example.) Most banks were presumably undercapitalized on a mark-to-market basis at the time, even if their balance sheets, using book values, said otherwise (compare tables 7.1 and 7.2). They needed capital desperately, and most of them could not raise it in the dire circumstances of October 2008. If the government made equity investments, I thought, the bankers would breathe a sigh of relief, say “thank you very much,” and stuff the new capital into their balance sheets to rebuild their dangerously depleted equity and thereby to reduce leverage.

Investment: A History
by Norton Reamer and Jesse Downing
Published 19 Feb 2016

Fama-French Three-Factor Model In 1992, Eugene Fama and Kenneth French wrote a famous paper entitled “The Cross-Section of Expected Stock Returns” that appeared in The Journal of Finance, in which they said that beta alone is insufficient to capture the risk-return trade-off. They introduced two additional factors—size (as measured by the market capitalization) and value (as measured by the book-to-market equity ratio)—as explanatory variables in the performance of stocks. They found that value firms (or firms with low price-to-book value, as compared with growth firms) and small firms (low market capitalization) have higher expected returns in the aggregate but also have higher risk. That is, there is generally a premium earned by holding value and small capitalization stocks. This three-factor model was found to significantly enhance the explanatory capacity of the model when compared to the pure capital asset pricing model.34 This contention was of considerable practical importance.

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Graham and Dodd posited that one could, in fact, outperform the market by concentrating on value stocks. These were stocks that had a margin of safety, or were protected by a fundamental valuation that exceeded the market’s valuation. They also championed finding stocks that traded with relatively low price-to-book value or even sold at a discount to net tangible assets. The stock market, they believed, was irrational enough to push stocks out of favor and drive the price away from what it was actually worth based on an analysis of fundamentals.42 Graham would later discuss the short-run irrationality of the market by way of his analogy of “Mr.

Capitalism in America: A History
by Adrian Wooldridge and Alan Greenspan
Published 15 Oct 2018

Carnegie disliked public ownership, reasoning that “where stock is held by a great number, what is everybody’s business is nobody’s business,” and structured his corporation into a series of partnerships, each controlled by Carnegie himself, and subject to an overall “Iron Clad Agreement” that forced any partner who wanted to get out to sell his stake back to the company at book value. He only adopted the corporate form in 1900 when a lawsuit by Henry Clay Frick left him with no choice. John D. Rockefeller also structured his company as a succession of interlocking partnerships under his personal control. Henry Ford increased his control of his company in the mid-1920s by turning it into a sole proprietorship.

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Almost all new subprime mortgages were being securitized, compared with less than half in 2000. Securitizers, protected by the (grossly inflated) credit ratings, found a seemingly limitless global market for their products, ranging from Icelandic banks to Asian and Middle Eastern sovereign wealth funds. The book value of subprime mortgage securities stood at more than $800 billion, almost seven times their level at the end of 2001. Fannie and Freddie made the problem even worse by cloaking the size of America’s subprime problem with defective bookkeeping. Organizational changes on Wall Street also encouraged risky behavior.

Company: A Short History of a Revolutionary Idea
by John Micklethwait and Adrian Wooldridge
Published 4 Mar 2003

Claiming a profound distrust of public ownership (“Where stock is held by a great number, what is anybody’s business is nobody’s business”), he structured his corporation into a series of partnerships, each controlled by Carnegie himself, and subject to an overall “Iron Clad Agreement” that forced any partner who wanted to get out to sell his stake back to the company at book value.22 But in 1901, after a brief conversation on a golf course, he sold the company to J. P. Morgan and Elbert Gary for $480 million. They then combined it with another two hundred or so smaller firms and offered the United States Steel Corporation to the public at a valuation of $1.4 billion. A similar deal done today, expressed as the same proportion of GNP, would approach half a trillion dollars.23 U.S.

Unleashed
by Anne Morriss and Frances Frei
Published 1 Jun 2020

Many of the ideas in this section are also described in “Better, Simpler Strategy,” a pamphlet Frances coauthored with Felix Oberholzer-Gee (Frances X. Frei and Felix Oberholzer-Gee, “Better, Simpler Strategy,” Baker Library, Boston, September 2017). Felix is a friend and colleague who understands the principles of strategy deeply and describes them clearly and elegantly. His fantastic book, Value-based Strategy: A Guide to Understanding Exceptional Performance, is forthcoming. 8. This framework is an illustration of value-based strategy, an approach to strategic management that builds on the foundational work of Michael Porter, Adam Brandenburger, and Harbone Stuart. 9. David Yoffie and Eric Baldwin, “Apple Inc. in 2015,” Case 715-456 (Boston: Harvard Business School, 2015). 10.

Logically Fallacious: The Ultimate Collection of Over 300 Logical Fallacies (Academic Edition)
by Bo Bennett
Published 29 May 2017

Logical Form: Person 1 says A. Person 2 says Z. Therefore, somewhere around M must be correct. Example #1: So you are saying your car is worth $20k. I think it is worth $1, so let’s just compromise and say it is worth $10k. (Assuming the car is worth $20k) Explanation: The price of $20k was a reasonable book value for the car, where the price of $1 was an unreasonable extreme. The fact is the car is worth about $20k – thinking the car is worth $1 or $1,000,000, won’t change that fact6. Example #2: Ok, I am willing to grant that there might not be angels and demons really floating around Heaven or hanging out in Hell, but you must grant that there has to be at least one God.

Trade Your Way to Financial Freedom
by van K. Tharp
Published 1 Jan 1998

Business Fundamentals Most of the setups used by Warren Buffett, as well as some of those used by William O’Neil, are business fundamentals. What are the earnings? What is the yield? What are sales? What are profit margins? What are the owner’s earnings? How many shares are outstanding? What is the book value and earnings per share? How has business grown? This sort of information is quite different from price data. We’ll be discussing fundamentals such as these in the next section. Management Information Who is running your potential investment, and what is their track record? Warren Buffett had several tenets for management.

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• Three futures trading systems are reviewed in terms of setups: Perry Kaufman’s idea of market efficiency, William Gallacher’s fundamental model, and Ken Roberts’ model that has been so widely promoted around the world. NOTES 1. Fundamental analysis for stocks is somewhat different. Here you are looking at the earnings, the book value, the management, and other conditions that tell you about the internal structure of a company. 2. You can subscribe to Tharp’s Thoughts, my free weekly newsletter, at www.iitm.com. 3. The Motley Fool Foolish Four approach stopped working because it was so widely disseminated by the Motley Fool Web site.

The Wisdom of Finance: Discovering Humanity in the World of Risk and Return
by Mihir Desai
Published 22 May 2017

Because of the principle of historic cost accounting—that assets should be represented at their acquisition price—some assets are listed at values that are completely distinct from current values. You’ll see balance sheets with large amounts of “goodwill” (the amount paid to acquire a company in excess of its book value) that may now have little value at all. As such, accounting and balance sheets are static and backward-looking by their nature. They are incomplete snapshots divorced from real value. Individuals who measure their progress by tallying their own personal balance sheets will make the same mistakes that accountants make.

The Wide Lens: What Successful Innovators See That Others Miss
by Ron Adner
Published 1 Mar 2012

But the Kindle’s entrance into the market lit a fire: by the end of 2010, e-book sales were fast approaching $120 million. By the time Amazon launched the Kindle 3 in 2010, it held 80 percent market share of electronic books and, with estimated sales of the Kindle at 6 million for that year, 48 percent market share of e-readers. Deconstructing E-Book Value Blueprints Sony and Amazon built their value blueprints using identical pieces but placed them in very different positions. In contrast to Sony, Amazon followed a blueprint that put it firmly in the role of integrator, bringing together all the various elements required for value creation itself, and delivering a comprehensive, intuitive experience to its customers.

The Triumph of Injustice: How the Rich Dodge Taxes and How to Make Them Pay
by Emmanuel Saez and Gabriel Zucman
Published 14 Oct 2019

Rosenthal and Austin (2016). 20. Meyer and Hume (2015). 21. For smaller businesses (like mom-and-pop companies with a single owner), the simplest way to proceed is to follow the best international practices. Switzerland has successfully taxed equity in small, single-owner private businesses by using formulas based on the book value of business assets and multiples of profits. In the United States, the IRS already collects data about the assets and profits of private businesses for business and corporate income tax purposes, so it would be straightforward to apply similar formulas. Chapter 8: BEYOND LAFFER 1. Commentators often convert brackets using price inflation adjustment only, without factoring in economic growth.

A Wealth of Common Sense: Why Simplicity Trumps Complexity in Any Investment Plan
by Ben Carlson
Published 14 May 2015

Historically speaking, value stocks have outperformed the rest of the market by anywhere from 2 to 5 percent, depending on the time frame and markets involved. In simplistic terms, value investing is buying cheap assets that are either underappreciated by the market or have become beaten down in price. Value stocks are shares of those companies that trade for lower multiples based on company measures such as book value, earnings, or cash flows. There are two theories that try to explain why the value-investing anomaly exists: (1) Investors prefer a narrative when buying stocks, so sexy growth stories and glamour stocks tend to receive the most attention from investors and the media. Most people assume great companies should make for great stocks, without considering valuation.

The Education of a Value Investor: My Transformative Quest for Wealth, Wisdom, and Enlightenment
by Guy Spier
Published 8 Sep 2014

Blair, I’d reviewed so many business plans with hockey-stick charts and predictions that only went up. Berkshire’s report came with a plain cover, and its highlight was a candid, non-promotional, easily understandable letter by Buffett. The report also featured a table showing the annual increases in the company’s book value. It was pure information, not an attempt to lie with statistics or to sugarcoat the truth with pretty pictures printed on glossy paper. I’d never seen a report like this. It was designed to attract shareholders who were genuinely reading it for the right reasons. I’d assumed that the business world was all about shouting louder than the next guy so you could get attention.

Where Does Money Come From?: A Guide to the UK Monetary & Banking System
by Josh Ryan-Collins , Tony Greenham , Richard Werner and Andrew Jackson
Published 14 Apr 2012

In this situation, the bank can rapidly run out of both cash and central bank reserves. The bank can try to quickly sell off its loans in order to bring in the central bank reserves it needs to pay other banks, but if investors have concerns about the quality of the loans they are likely to force down the price of the loans and pay below the ‘book’ value of those loans. The bank may then be forced in to a ‘fire-sale’ of all of its assets in order to meet depositors’ demands for withdrawals. If the price of its assets keeps falling, this will eventually lead to the type 1 insolvency explained above, whereby the total value of a bank’s assets is less than its liabilities.

The Making of Global Capitalism
by Leo Panitch and Sam Gindin
Published 8 Oct 2012

Moreover, the flow of private American capital to Europe after World War I was considerably greater than immediately after World War II.20 The US Department of Commerce itself claimed that the rapidity with which the US acquired foreign assets through the 1920s was “unparalleled in the experience of any major creditor nation in modern times.”21 Over the decade of the 1920s, the book value of total American foreign direct investment increased by 129 percent in manufacturing, and 95 percent overall. In Latin America, US investment finally exceeded Britain’s, and because so much of this involved owning the region’s manufacturing as well as resource industries, rather than just providing loans through portfolio investment, US capital’s penetration was far deeper.

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Casey argued that “the dollar’s problem comes from a failure to properly assess the solid assets which lie below the surface . . . The US is still dominant in computers, photography, pharmaceuticals, medical technology, aerospace, nuclear power, home building, heavy industrial machinery, off shore drilling utility operations and so on.”64 Moreover, the balance-of-payments accounts did not register the $90 billion in book value of American foreign direct investment or the operations of over a hundred American banks and 250 brokerage offices overseas. Although the US could, Casey observed, wipe out its trade deficit by a 25 percent increase in its exports, achieved through an export-oriented business strategy, a devalued dollar, and US government pressure on other countries to open their markets, this would “appall our trading partners.”

The Alpha Masters: Unlocking the Genius of the World's Top Hedge Funds
by Maneet Ahuja , Myron Scholes and Mohamed El-Erian
Published 29 May 2012

How could they be producing 7 percent return on capital while the cost of that capital exceeded 10 percent?” Gradually, it came out that Enron had many maneuvers. “One partner suggested then that Enron was ‘a hedge fund in disguise’—and not a very good one,” says Chanos. “Investors were crazy to pay six times book value to own the stock.” One scheme Enron used was its accounting approach for its contracts to sell future delivery of natural gas as a security. They took advantage of “gain-on-sale” accounting rules allowing a company to estimate the future profitability of a trade made today, and book a profit today based on the present value of those estimated future profits.

Exponential Organizations: Why New Organizations Are Ten Times Better, Faster, and Cheaper Than Yours (And What to Do About It)
by Salim Ismail and Yuri van Geest
Published 17 Oct 2014

A warning: At this stage, it is important that the BMC be simple and not overthought. Experimentation will navigate you to the best path and provide the next level of fidelity. Credit: Alexander Osterwalder. For more on how to create effective value propositions, we recommend reading Osterwalder’s new book, Value Proposition Design: How to Create Products and Services Customers Want. Step 6: Find a Business Model It is also important to understand that if you’re going to achieve a 10x improvement, there’s a strong likelihood that your company will require a completely new business model. As Clayton Christensen illustrated in The Innovators Dilemma, which was published in 1997, disruption is mostly achieved by a startup offering a less expensive product using emerging technologies and meeting a future or unmet customer need or niche.

Finding Alphas: A Quantitative Approach to Building Trading Strategies
by Igor Tulchinsky
Published 30 Sep 2019

Total assets are typically used as a normalizing factor to make the values of other factors comparable among different companies or to compare snapshots of the same company at different times. For US companies, the value of total assets includes the intangible asset known as goodwill, defined as what a company pays for another company above book value. Though goodwill contains items such as branding, investors should generally consider whether to discount the goodwill included in the total assets as a normalizing factor. The following well-known factors constructed from the balance sheet were positively correlated with future returns from 1976 to 1996, as observed by Piotroski (2000): •• Increased liquidity (current assets over current liabilities) •• Improved sales over total assets •• No equity issuance •• Less long-term debt Table 19.1 The balance sheet equation Balance sheet YYYYMMDD Assets Liabilities + Equity Current assets Current liabilities Other assets Long-term debt Intangible assets (goodwill, etc.)

Restarting the Future: How to Fix the Intangible Economy
by Jonathan Haskel and Stian Westlake
Published 4 Apr 2022

Stephen Cecchetti and Kim Schoenholtz make this point forcefully: “The financing of intangible investment requires overcoming the ‘tyranny of collateral.’ ”7 They also point out that US firms in the intangible-intensive software sector have debt that is about 10 percent of book equity, while firms in the tangible-intensive restaurant sector have a debt-to-book value of almost 95 percent. It would, of course, be wrong to say that intangibles-intensive firms and even intangible assets themselves can never be financed with debt. Large-scale commercial lenders do not always or exclusively lend against collateral. They also use loan covenants related to earnings.8 The economists Chen Lian and Yueran Ma9 document that amongst US nonfinancial listed firms, 80 percent of debt is based predominantly on cash-flow-related covenants.

The Prize: The Epic Quest for Oil, Money & Power
by Daniel Yergin
Published 23 Dec 2008

But talks ultimately collapsed, partly because of the tough negotiating stance of Standard of California's president, Kenneth Kingsbury, and his associates—"King Rex" and "those sunkist sons of bitches," as they were known to the Jersey people. Personalities aside, a more important reason for the failure of the merger was Jersey's accounting system, which—to Walter Teagle's great anger and chagrin—could not satisfactorily establish either Jersey's book value or its true profitability. [14] One thing did unite virtually the whole industry: Though scientific understanding of oil production had advanced by the end of the 1920s, opposition to direct regulation by the federal government was overwhelming. The tycoon Harry Doherty, outraged that the bulk of the oil industry denounced his incessant calls for regulation, predicted, "The oil industry is in for a long period of trouble ...

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Yet before any agreements could be made, several fundamental issues had to be thrashed out, including the basic question of valuation. For instance, depending on the accounting formula that was chosen, 25 percent of the Kuwait Oil Company could be worth anywhere from sixty million to one billion dollars. Finally, in that case, the two sides came together by inventing a new accounting concept, "updated book value," which included inflation and large fudge factors. And in October 1972 a "participation agreement" was finally reached between the Gulf states and the companies. It provided for an immediate 25 percent participation share, rising to 51 percent by 1983. But, despite all the OPEC endorsements, the application of the agreement was less popular in the rest of OPEC than Yamani hoped.

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Mikdashi, Sherrill Cleland and Ian Seymour, Continuity and Change in the World Oil Industry (Beirut: Middle East Research and Publishing Center, 1970), pp. 215-16 (Yamani on participation); Sampson, Seven Sisters, p. 245 ("Catholic marriage"); Multinational Hearings, part 6, pp. 44-45 ("concerted action"), 50 ("trend toward nationalization"); Schneider, Oil Price Revolution, pp. 176 ("updated book value" and "participation agreement"), 179, 182 (Exxon chairman); Interview with Ed Guinn, Multinational Subcommittee Staff Interviews (skeletons); Wall, Exxon, pp. 840-42 ("hard blow" and "I won"). [12] Sampson, Seven Sisters, pp. 240-42; Multinational Hearings, vol. 7, pp. 332-37 (surplus capacity).

The Sharing Economy: The End of Employment and the Rise of Crowd-Based Capitalism
by Arun Sundararajan
Published 12 May 2016

For our eventual analysis Fraiberger and I used data from about two years of peer-to-peer car rental demand generously provided to us by Getaround for our research. We combined this with data from a variety of sources—the Bureau of Labor Statistics, the National Household Transportation Survey, and the National Automobile Dealers Association (the folks who provide Blue Book values) to “calibrate” our models, which allowed us to create the virtual laboratory of sorts that we use to make projections about the future. So what did our analysis reveal? How will peer-to-peer rental markets impact the economy over time? Well, we found that ownership and consumption patterns change quite significantly, shifting the population significantly away from ownership.

Python for Finance
by Yuxing Yan
Published 24 Apr 2014

Ratio analysis is one of the commonly used tools to compare the performance among different firms and for the same firm over the years. DuPont identity is one of them. DuPont identity divides Return on Equity (ROE) into three ratios: Gross Profit Margin, Assets Turnover, and Equity Multiplier: ROE = Net Income Sales Total Assets ∗ ∗ Sales Total Assets Book value of Equity (3) The following code will show those three ratios with different colors. Here we have the following information about some firms: Ticker Fiscal Year Ending Date ROE Gross Profit Margin Assets Turnover Equity Multiplier IBM December 31, 2012 0.8804 0.1589 0.8766 6.3209 DELL February 1, 2013 0.2221 0.0417 1.1977 4.4513 WMT January 31, 2013 0.2227 0.0362 2.3099 2.6604 The Python code is as follows: import numpy as np import matplotlib.pyplot as plt ind = np.arange(3) plt.title("DuPont Identity") plt.xlabel("Different companies") plt.ylabel("Three ratios") ROE=[0.88,0.22,0.22] a = [0.16,0.04,0.036] b = [0.88,1.12,2.31] c = [6.32,4.45,2.66] width = 0.45 plt.figtext(0.2,0.85,"ROE=0.88") [ 133 ] Visual Finance via Matplotlib plt.figtext(0.5,0.7,"ROE=0.22") plt.figtext(0.8,0.6,"ROE=0.22") plt.figtext(0.2,0.75,"Profit Margin=0.16") plt.figtext(0.5,0.5,"0.041") plt.figtext(0.8,0.4,"0.036") p1 = plt.bar(ind, a, width, color='b') p2 = plt.bar(ind, b, width, color='r', bottom=a) p3 = plt.bar(ind, c, width, color='y', bottom=[a[j] +b[j] for j in plt. xticks(ind+width/2., ('IBM', 'DELL', 'WMT') ) plt.show() In the previous program, plt.figtext(x,y,'text') adds a text message at x-y location with x and both having a range from 0 to 1.

Foolproof: Why Safety Can Be Dangerous and How Danger Makes Us Safe
by Greg Ip
Published 12 Oct 2015

Economists have a number of theories for the unusual gap between what premiums should be and what insurers actually charge, from tax considerations to inefficient capital markets, but none seemed adequate. The real reason was advanced by Buffett himself after he closed the earthquake deal. Some companies would be crippled by $600 million in losses, but not Berkshire; that sum represented a mere 3 percent of book value. As he explained: “Were a truly cataclysmic disaster to occur, it is not impossible that a financial panic would quickly follow… there could well be respected reinsurers that would have difficulty paying at just the moment that their clients faced extraordinary needs.… When it’s Berkshire promising, insured know with certainty that they can collect promptly.”

Rethinking the Economics of Land and Housing
by Josh Ryan-Collins , Toby Lloyd and Laurie Macfarlane
Published 28 Feb 2017

Domestic demand may have been curtailed by lenders’ attempts to deleverage, a trend reinforced by a new regulatory regime requiring lenders to inspect borrowers’ ability to repay far more closely, but the global nature of the financial crisis also opened up new sources of demand, as anxious foreign capital sought the relative safety of UK property, joining the flood of buy-to-let investment (see section 6.4). The financial crisis and the response to it also had profound impacts on the housing supply industry and the land market. After 2008 the mortgage lending banks, the major developers and government all had an interest in maintaining artificially high book values of developers’ land banks. If land prices had been allowed to crash, as they had after previous market busts, many developers would have faced bankruptcy. Despite many developers breaching their bank covenants, or coming close to it, in the main it suited the banks not to foreclose on their assets, as this would have hastened the downward spiral in land values.

The Great Depression: A Diary
by Benjamin Roth , James Ledbetter and Daniel B. Roth
Published 21 Jul 2009

Again and again dishonesty and speculation by bankers with bank funds becomes the subject of newspaper notoriety. The latest investigation discloses such practices on part of National City Bank of New York. By manipulation the officers boosted and unloaded on the public their own stock in National City Bank to the public as high as $650 per share when its book value was only $60. Likewise when the crash came this same bank sold out collateral of its customers but loaned money to its officers to save them from loss. Other similar practices enriched the bank officials at the expense of the depositors and the public. In spite of this the vast majority of banks and bankers were honest.

Late Bloomers: The Power of Patience in a World Obsessed With Early Achievement
by Rich Karlgaard
Published 15 Apr 2019

But even when The Intelligent Investor first appeared and reinforced the intrinsic value philosophy of investing, Geraldine Weiss was already thinking beyond Graham and Dodd and developing her own ideas about stock investing. Weiss had no quarrel with intrinsic value as a philosophy, but she harbored doubts about how value is determined. Graham and Dodd particularly liked using two ratios: price/earnings and price/book value. Investors still use these ratios today. Tune in to CNBC almost any given day, and you’ll hear Jim Cramer talk about a stock’s “P/E ratio” and its “price-to-book” number. And if you Google a company’s stock, the price/earnings and price/book will pop up instantly. But Weiss was skeptical of these ratios.

The Revolution That Wasn't: GameStop, Reddit, and the Fleecing of Small Investors
by Spencer Jakab
Published 1 Feb 2022

Let’s see what kind of payout he walks away with. Who knows what is to come, and when this diamond hand genius will sell. Gill had made a small fortune on paper, and GameStop’s share price was now close to the upper end of his estimates of its value a year earlier. At this point, if Gill had been a by-the-book value investor, he might have cashed out, and this story could have been very different. But suddenly he had reason to aim even higher with Cohen on the scene and seeking to shake things up. As Roaring Kitty, Gill was hosting YouTube live streams about GameStop that began to attract more than just a handful of viewers.

Modern Monopolies: What It Takes to Dominate the 21st Century Economy
by Alex Moazed and Nicholas L. Johnson
Published 30 May 2016

HTC’s sales shrank by 36 percent in 2012 compared to a year earlier.12 Meanwhile, Motorola was already losing money. It registered a loss of $249 million for the fiscal year of 2011.13 Faced with the prospect of continued decline, Motorola sold itself to Google in 2012 for $12.5 billion (though this acquisition included Motorola’s $3 billion cash reserves, meaning the book value of the deal was only $9.5 billion). Even then, Google ostensibly acquired the company just for its patent portfolio, which helped Google defend Android against patent trolls and competitors. By the end of the year, Google already had sold off Motorola’s Home division for $2.35 billion. Scarcely a year later, it sold Motorola’s handset division for $2.91 billion to Lenovo.

Ultimate Sales Machine
by Chet Holmes
Published 20 Jun 2007

I recently looked to buy a new vehicle to tow my boat. The salesperson took my card, but I never heard from him. Insteau, to my surprise, I got a "quality control follow-up call." After a few questions, the person got around to asking why I didn't buy. I told them why (the trade-in offer was thousands below the Kelley Blue Book value). I then asked a few questions of my own and found out that the dealer had hired a group to do the follow-up. Here an entire side business has been born: selling telephone follow-up to dealerships that can't seem to figure how to properly manage that practice internally. 40 The UltImate Sales MachIne This is not to say that you have to dictate what the follow-up is supposed to be.

Gaming the Vote: Why Elections Aren't Fair (And What We Can Do About It)
by William Poundstone
Published 5 Feb 2008

'What bothered me is that if you have a definition of 'better off: you'd like to be able to say that if A is better off than Band B is better off than C, then A is better off than C. It does not foHow! I could think of examples right away!" Arrow was talking about intransitivity. Hicks had no idea what he was talking about. "A year later, I'm working on my thesis," Arrow continued. ''I'm a great admirer of Hicks's book Value and Capital [1939]. But I could see, being the empirical character I am, some problems. I thought my thesis would be fixing them up." One problem was how corporate stockholders vote on a new director. Provided there are three or more candidates, Arrow realized, it is possible for the results of voting to be intransitive.

The Upside of Inequality
by Edward Conard
Published 1 Sep 2016

Hulton, “Measuring Intangible Capital and Its Contribution to Economic Growth in Europe,” European Investment Bank Papers 14, no. 1 (2009), http://econweb.umd.edu/~hulten/L5/Measuring%20Intangible%20Capital%20and%20Its%20Contribution%20to%20Economic%20Growth.pdf. Janet X. Hao and Charles R. Hulton, “What Is a Company Really Worth? Intangible Capital and the ‘Market to Book Value’ Puzzle,” Working Paper 08-02, Economics Program of the Conference Board, revised December 2008, http://www.nber.org/papers/w14548. 18. Chad Syverson, “Challenges to Mismeasurement Explanations for the U.S. Productivity Slowdown,” National Bureau of Economic Research, January 2016, http://faculty.chicagobooth.edu/chad.syverson/research/productivi tyslowdown.pdf.

Economists and the Powerful
by Norbert Haring , Norbert H. Ring and Niall Douglas
Published 30 Sep 2012

It is hard to imagine that they manage to do this without taking into account their superior knowledge of the prospects of the company. Muller, Neamtiu and Riedl (2009) have used the observable adverse event “goodwill impairment” to investigate the prevalence of insider trading by managers. “Goodwill” is that part of the price paid by the acquirer of a company that exceeds the book value of the companies’ assets. This goodwill enters the acquiring company’s accounts as an asset. If it turns out that the company that it bought is not really worth as much as it cost, this asset item is written down. In this case, goodwill is said to be impaired. The authors provide evidence that insiders of goodwill-impaired firms sell a larger than normal share of their stock in the company prior to the announcement of such losses.

My Life as a Quant: Reflections on Physics and Finance
by Emanuel Derman
Published 1 Jan 2004

Nowadays, the cosmos of trading systems is very different. PCs are ubiquitous, spreadsheets are easy to use, and risk management software is increasingly available from tens of companies selling everything from building blocks to turnkey systems. Nevertheless, the largest banks still build their own software in order to book, value, and hedge the latest products as soon as they come to market. Even today, though, risk systems are balkanized, each one focusing on one or two product classes at most. There is still room out there for a system or language which can handle all the classes of securities-mortgages, swaptions, currencies, equities, metals, energy derivatives, and so on-that a large firm trades.

Early Retirement Extreme
by Jacob Lund Fisker
Published 30 Sep 2010

Depreciation schedules The best way to think about cost is not the sticker price but the depreciation schedule. The depreciation schedule follows this equation: Annual cost = (Your cost - Used price)/(Years in service). The depreciation principle is widely understood to apply to cars, given the popularity of the used car market. Most people have an idea of the blue book value of their car--that is, how much it can be sold for used. However, everything else has a market price even if it doesn't have an army of salesmen or corresponding blue book. Make it a point to know the market price of all your stuff. Doing so makes it a simple matter to calculate the annual depreciation cost, which is the true cost of ownership.

Family Trade
by Stross, Charles
Published 6 Jan 2004

Small mom-and-pop businesses doing a lot of export down south with seven- or eight-digit stakeholdings. I traced another—flip to the next?" "Okay. Dallas Used Semiconductors. Buying used IBM mainframe kit? That's not our—and selling it to—oh shit." "Yeah." Paulie frowned. "I looked up the book value. Whoever's buying those five-year-old computers down in Argentina is paying ninety percent of the price for new kit in cash greenbacks—they're the next thing to legal currency down there. But up here, a five-year-old mainframe goes for about two cents on the dollar." "And you're sure all this is going into Proteome and Biphase?"

Sam Walton: Made in America
by Sam Walton and John Huey
Published 1 Jan 1992

Consequently, he realized fabulous returns on it. He had more ownership than any of the managers. Rob Walton: "Dad had a spread sheet listing all the minority ownerships in the various companies, and the problem was figuring out on what basis to value them all for the initial offering. As I recall, we basically proposed using book value. We did not do any kind of sophisticated relative evaluation of the companies which would have taken into account earnings and growth projections and all that sort of stuff. But everybody signed right up. And as far as I know, everybody's happy today with the way it worked out." We were all ready to go at the beginning of 1970, and Ron Mayer and I did a dog and pony show all over the place—Los Angeles, San Francisco, Chicago—telling everybody how great we were going to be.

Fool's Gold: How the Bold Dream of a Small Tribe at J.P. Morgan Was Corrupted by Wall Street Greed and Unleashed a Catastrophe
by Gillian Tett
Published 11 May 2009

The Fed agreed, but as a quid pro quo it suggested that the price of the deal should be raised to $10 a share. That offered a tiny crumb of comfort to Bear shareholders, but it also removed some of the financial cushion in the deal for JPMorgan Chase. On Sunday, March 16, Dimon had thought he was acquiring the bank with a cushion of about $5 billion between the sale price and the book value of its assets. By April that cushion was evaporating. It later disappeared entirely. There were other disturbing blows. In the months before Bear had collapsed, the broker had acquired a large number of credit derivatives contracts that were designed to protect it from a downturn in the credit markets.

The King of Oil: The Secret Lives of Marc Rich
by Daniel Ammann
Published 12 Oct 2009

It was the market leader in the oil, metals, and minerals trade. As is the Swiss habit, the parties agreed to strict confidentiality regarding the final selling price. It’s time to disclose this secret here. Rich could have demanded much more for his stake in Marc Rich + Co. In the end he settled for the book value and set the price at 480 million. “Marc sold cheap,” one of the buyers told me. He had two conditions, though. First, Rich didn’t want the management to quickly sell on the shares at a higher price to a third party. He could have done that himself. Second, a so-called postclosing adjustment was inserted into the contract.

The Unusual Billionaires
by Saurabh Mukherjea
Published 16 Aug 2016

HDFC Bank’s high ROE also ensured easy access to fresh equity capital when the bank’s growth exceeded its internal capital generation. Investors have been so confident of the bank’s ability to use the capital in an efficient way that the bank always raised capital at very high multiples (3.5–4.5 times trailing book value). The bank’s ability to raise fresh capital at such higher multiples has helped the bank in maintaining a high dividend payout ratio of 20–25 per cent, while still maintaining a high balance sheet growth. HDFC Bank’s share price outperformance A rupee invested in HDFC Bank at its IPO in March 1995 is worth Rs 134 now (April 2016), implying a CAGR of 26 per cent.

Sickening: How Big Pharma Broke American Health Care and How We Can Repair It
by John Abramson
Published 15 Dec 2022

Thus, the IPD is more complete than CSRs but would require far more time, skill, and additional documentation from the manufacturer than reliance on CSRs for independent prepublication review of manuscripts. * Trulicity costs $8,328 per year, and 323 people must be treated to prevent one event: $8,328 × 323 = $2,690,000 per event prevented. * ROIC equals net operating profits after taxes divided by invested capital (book value of company stock, interest in subsidiaries, and outstanding long-term debt). ROIC correlates strongly with the changes in stock price; see forbes.com/sites/greatspeculations/2018/11/27/dont-get-misled-by-return-on-equity-roe/#7495d6fe4ed4. * With this exception: a weak recommendation for long-acting insulin analog in individuals with “frequent severe hypoglycemia with human insulin

Halting State
by Charles Stross
Published 9 Jul 2011

If the other driver has a doctor’s note, pull their BMA records and see if they’re legit—I’ll bet you a bottle of Chardonnay there’s a reprimand on file because doctors who’re willing to diagnose fictional ailments for cash rarely stop at one. Once you’ve got that, you can go after the vehicle with a statutory vehicle history disclosure notice—that’s what the police use on you if they think you’re driving a chop job—and then you can query the vehicle’s book value. At which point, if you’re right and it’s a swoop and squat, NU will hit up their insurer for the full value of the claim and blacklist them, while indemnifying you. Your insurer should do all of this automatically if you get their Abuse team’s attention, but you don’t have to wait—the forms are all online, you can do it from your phone, and once you’ve got the ball rolling, your insurer will pick it up.”

13 Bankers: The Wall Street Takeover and the Next Financial Meltdown
by Simon Johnson and James Kwak
Published 29 Mar 2010

* In the case of General Motors, the government used its power as the only source of financing to force out CEO Rick Wagoner and to dictate “haircuts” for creditors—steps it did not take with any major commercial or investment bank. * Commercial banks could record some assets on their balance sheets at high “book values” even if they could not actually sell them at those prices. So on paper, banks remained solvent—their assets exceeded their liabilities, whether or not they could actually sell the assets for enough to cover the liabilities. Selling assets would force banks to recognize their losses; not selling them allowed them to pretend that the assets had not deteriorated in value

The Physics of Wall Street: A Brief History of Predicting the Unpredictable
by James Owen Weatherall
Published 2 Jan 2013

In addition to Bear Stearns and Lehman Brothers, the insurance giant AIG as well as dozens of hedge funds and hundreds of banks either shut down or teetered at the precipice, including quant fund behemoths worth tens of billions of dollars like Citadel Investment Group. Even the traditionalists suffered: Berkshire Hathaway faced its largest loss ever, of about 10% book value per share — while the shares themselves halved in value. But not everyone was a loser for the year. Meanwhile, Jim Simons’s Medallion Fund earned 80%, even as the financial industry collapsed around him. The physicists must be doing something right. 1 Primordial Seeds LA FIN DE SIÈCLE, LA BELLE EPOQUE.

Austerity: The History of a Dangerous Idea
by Mark Blyth
Published 24 Apr 2013

Realizing that such ad hoc measures were not enough to stop the complete collapse of the economy, the government set up a bad bank, the National Asset Management Agency (NAMA), to take the toxic assets off the banks’ books. The end result of all this activity was a full guarantee of the assets of the entire banking system: a total bailout. NAMA bought the assets at above book value with taxpayer money, sold shares of NAMA back to the banks, and they, in turn, used these shares as collateral to get liquidity from the ECB. In short, creative accounting and a helpful government enabled the banks to walk away scot-free from the carnage they had caused. Ireland was now shut out of international markets and placed at the mercy of the IMF-ECB-EC troika.

The Panama Papers: Breaking the Story of How the Rich and Powerful Hide Their Money
by Frederik Obermaier
Published 17 Jun 2016

When, in 2008, the signs started to suggest that this phase would not go on indefinitely, and it looked as if the big banks could be derailed, the octopuses went even further: they manipulated the banks’ share prices. The principle was as simple as it was disastrous: the banks granted loans to shareholders who in turn used these loans to purchase shares in the same banks, which then caused an artificial hike in the share price. The result was that the book value of the top three banks grew to eight times the size of Iceland’s GDP. Eight times! It was the beginning of the end. In September 2008, in the wake of the financial markets crash triggered by the Lehman Brothers declaring bankruptcy, the banks were no longer able to repay their creditors and collapsed.

Priceless: The Myth of Fair Value (And How to Take Advantage of It)
by William Poundstone
Published 1 Jan 2010

Amos Tversky and Paul Slovic later generalized this idea into a “compatibility principle.” This rule says that decision makers give the most attention to information that is most compatible with the required answer. Whenever you have to name a price, you will focus on prices or other dollar amounts in the problem. In deciding how much to offer for a used car, Kelley Blue Book value and prices on Craigslist command attention. Everything else that ought to matter (condition, repair history, color, options, whether you want the options) gets short shrift. The latter factors are not so easily mapped onto the dollar scale. Lichtenstein and Slovic used shifting attention to engineer an “impossibility.”

The Driver: My Dangerous Pursuit of Speed and Truth in the Outlaw Racing World
by Alexander Roy
Published 13 Oct 2008

Resembling Paul Sorvino, he alternated between the latter’s on-screen grimace and his own young son’s red-cheeked glee whenever I personally appeared to request installation of yet another illegal device. The Weis, Nine, and Cory approached as we stood by the M5, by far the dirtiest, most dented, highest-mileage car present, its $35,000 book value (not including thousands of dollars of modifications useless to anyone else) but a fraction of the next cheapest car in the garage. Charles Graeber, a six-five, thirty-two-year-old, Hunter Thompson-esque writer for Wired, the New York Times, and National Geographic, who spoke like he gargled with charcoal and gravel, and who, unarmed, had survived many unexpected meetings with Africa’s surliest meat-loving predators, sat uncomfortably hunched forward in my driver’s seat, already pushed back against its detent.

The Deficit Myth: Modern Monetary Theory and the Birth of the People's Economy
by Stephanie Kelton
Published 8 Jun 2020

Though market incentives, such as giving tax credits to companies who develop more sustainable energy generation, can potentially stimulate a build-out of alternative energy sources, they can also slow adoption as developers wait for optimal economic conditions. As a result, utilities might wait longer before retiring existing coal plants. How might an MMT-led approach introduce new options into the mix? One possibility might be that the federal government could allow electric utilities to sell to the government at book value any high-emission generator, no matter its age, in order to remove those costs from rates—a bit like the “cash for clunkers” program (Car Allowance Rebate System), which encouraged US residents to trade in their old, less-fuel-efficient vehicles for more-fuel-efficient ones, but aimed at grid decarbonization.

Unfinished Business
by Tamim Bayoumi

The exact quote is that “roughly 7 to 10 of 15 banks produced estimates of risk within a range of plus or minus 25 percent of the median estimate”. 27.Basel Committee on Banking Supervision (1996). 28.Greenspan (2008), pp. 372–3. 29.Financial Services Authority (2005). 30.Dermine (2002), Table 13. 31.Branches were a more popular method of entry in the southern countries than in the northern core. 32.An additional underlying factor was the information technology revolution, which tended to favor large banks with widespread operations over small banks with local knowledge. 33.The vertical axis shows the ratio of the book value of equity to total assets, the horizontal axis the ratio of Tier 1 capital to risk-weighted assets. 34.Vestergaard and Retana (2012). See also Blundell-Wignall and Roulet (2012). 2 US Shadow Banks Unleashed 1.For example Johnson and Kwak (2011). My analysis is based on longer historical overviews of US financial deregulation, such as Kroszner and Strahan (2014) and (for a more jaundiced view) Sherman (2009). 2.Colton (2002) and Federal Housing Finance Agency Office of Inspector General (2011). 3.The Emergency Home Finance Act allowed Freddie and Fannie to buy and sell mortgages not insured or guaranteed by the federal government. 4.Over time, the caps on lending rates were gradually eliminated by a combination of favorable legal decisions, regulatory competition across states, and lower inflation.

Cryptoassets: The Innovative Investor's Guide to Bitcoin and Beyond: The Innovative Investor's Guide to Bitcoin and Beyond
by Chris Burniske and Jack Tatar
Published 19 Oct 2017

For example, with stocks, fundamental analysis involves the evaluation of a company’s operating health through close examination of its income statement, balance sheet, and cash flow statement, while placing these factors in the context of its long-term vision and macroeconomic exposure. Metrics like price to earnings, price to sales, book value, and return on equity are derived through fundamental analysis to determine the value of a company and compare it with its peers. Fundamental analysis can be a time-consuming process that requires access to the latest data not only for a company but also as it relates to an industry and the economy overall.

The Man Who Solved the Market: How Jim Simons Launched the Quant Revolution
by Gregory Zuckerman
Published 5 Nov 2019

For example, to predict the direction of a stock like Alphabet, the parent of Google, investors generally try to forecast the company’s earnings, the direction of interest rates, the health of the US economy, and the like. Others will anticipate the future of search and online advertising, the outlook for the broader technology industry, the trajectory of global companies, and metrics and ratios related to earnings, book value, and other variables. Renaissance staffers deduced that there is even more that influences investments, including forces not readily apparent or sometimes even logical. By analyzing and estimating hundreds of financial metrics, social media feeds, barometers of online traffic, and pretty much anything that can be quantified and tested, they uncovered new factors, some borderline impossible for most to appreciate.

file:///C:/Documents%20and%...
by vpavan

Analysts who did read the SEC disclosures often waved them off as irrelevant historical reports that revealed little about a company's future. More than any other accounting trick, "pooling of interests" was responsible for the 1990s merger spree, especially among high-tech companies with soaring stock prices but little in the way of profits. Pooling occurred when two companies merged their assets at book value, ignoring the much higher purchase price one paid for the other. This practice made it seem as if both had always been one entity, and allowed CEOs to hide from shareholders the huge premiums they were paying for acquisitions. Say a technology company bought a smaller one for billions of dollars.

Boom and Bust: A Global History of Financial Bubbles
by William Quinn and John D. Turner
Published 5 Aug 2020

The boom made it remarkably easy for highly innovative firms to raise capital.91 One of the companies to experience the most substantial bubble was the Radio Corporation of America, which was central not only to radio technology but to the later development of both black-and-white and colour television.92 Another company caught up in the boom was Burroughs Adding Machine, which went on to become one of the world’s largest producers of mainframe computers. The Columbia Graphophone Company, which had a market value over 50 times its book value in 1929, survived the crash by merging with the Gramophone Company and becoming a record label.93 It was later responsible for launching the careers of Chuck Berry, Pink Floyd and Cliff Richard. Without the overinvestment of the 1920s, these long-term achievements might have been impossible. However, it could also be argued that any positive effects on investment in new technology were offset by underinvestment in subsequent years.

Autistic Community and the Neurodiversity Movement: Stories From the Frontline
by Steven K. Kapp
Published 19 Nov 2019

The phrase (and this volume) are rooted in the concept of standpoint epistemology. A standpoint position claims that authority over knowledge is created through direct experience of a condition or situation. Standpoint epistemology is related to the idea of lay expertise, which is discussed extensively in the sociological literature. So, the book values the experience of autistic people as a source of knowledge about their own plight. v vi      Foreword The volume acknowledges that individual contributions are shaped by contributors’ political and social experience as well as their lived understanding of autism. Standpoint theory suggests inequalities foster particular standpoints, and that the perspectives of marginalized and oppressed groups can generate a fairer account of the world.

EuroTragedy: A Drama in Nine Acts
by Ashoka Mody
Published 7 May 2018

Viral Acharya, finance professor at New York University, and Sascha Steffen, finance professor at the Frankfurt School of Finance and Management, concluded that the EBA had overestimated the actual capital held by banks, especially French, German, and Italian banks.154 The problem, they noted, was that the EBA used the “book values” of capital, which were often out of date; the much lower, but probably also more realistic, “market values” of banks’ equity implied considerably larger capital shortfalls. The EBA also treated government bonds held by banks as risk-​free, and so it had underestimated the risks of default faced by banks.

…

At the same time, relatively meagre GDP growth, low interest-rate margins, and the continued need to make provisions for past losses have put a lid on the banks’ profits. Hence, the profit rates earned by banks’ equity investors are near historically low levels. Consequently, market valuations of banks are low relative to the book value of their assets. These low valuations reflect the added concern in financial markets that, under renewed stress, banks’ borrowers may not be able to repay their debts. Thus, the medium-term economic and financial outlook for the eurozone has many worrying features. Slow GDP growth and low inflation keep debt burdens elevated.

A Sea in Flames: The Deepwater Horizon Oil Blowout
by Carl Safina
Published 18 Apr 2011

Winter and Kevin Johnson, “Justice Department to Launch Oil Probe,” USA Today, June 2, 2010; http://www.usatoday.com/news/nation/2010-06-01-criminal-probe-of-oil-spill_N.htm. 7 “The majority, probably the vast majority,” and “I don’t see that as being a credible,” and “They continue to optimize production” “Scientists Challenge BP Containment Claims,” MSNBC, June 9, 2010; http://www.msnbc.msn.com/id/37573643/ns/disaster_in_the_gulf. 8 “could take leakage almost down to zero,” and “I’m not going to declare victory” “US Sets Deadline for BP as Mistrust Grows,” Agence France-Presse, June 10, 2010; http://dalje.com/en-world/us-sets-deadline-for-bp-as-mistrust-grows/308972. 9 BP shares hemorrhage an incredible 16 percent F. Ahrens, “BP Stock Crashes; Oil Giant Trading Below Book Value,” Washington Post, June 9, 2010; http://voices.washingtonpost.com/economy-watch/2010/06/bp_shares_crash_oil_giant_trad.html. 10 Estimate of the leak gets doubled “US Doubles Gulf Oil Flow Estimate,” Agence France-Presse, June 11, 2010; http://www.dailystar.com.lb/article.asp?edition_id=10&categ_id=2&article_id=115861#axzz16gupLzQJ. 11 “Still dealing with the flow estimate” S.

Fortunes of Change: The Rise of the Liberal Rich and the Remaking of America
by David Callahan
Published 9 Aug 2010

And what has happened in corporate America during the last few years is that more executives have come to believe the prediction of John McKay and others that socially responsible business will rule the future. Driven by a long-term fear of being left behind and a near-term terror of being zapped by activists, executives are jumping on the CSR bandwagon. Such fears are not irrational. In her book Value Shift, Harvard Business School professor Lynn Sharp Paine argues that global shifts in public opinion have raised the bar for corporate behavior. “Today’s leading companies are expected not only to create wealth and produce superior goods and services but also to conduct themselves as c10.indd 225 5/11/10 6:25:49 AM 226 fortunes of change ‘moral actors’—as responsible agents that carry out their business within a moral framework. . . .

Confidence Game: How a Hedge Fund Manager Called Wall Street's Bluff
by Christine S. Richard
Published 26 Apr 2010

He ended the letter with a very long rhetorical question about MBIA: “Does a company deserve your highest triple-A rating when its stock price has declined 90 percent; when it has cut its dividend; is scrambling to raise capital; completed a partial financing at 14-percent interest (and trading at a 20-percent yield one week later); has incurred losses massively in excess of its promised zero-loss expectations, wiping out more than half of book value; has Berkshire Hathaway as a new competitor, having lost access to its only liquidity facility; and has concealed material information from the marketplace? How can this possibly make sense?” THE NEXT MORNING, New York State Insurance Superintendent Eric Dinallo was skiing in the Berkshires with his family for the Martin Luther King weekend when the incoming phone calls began.

Your Money or Your Life: 9 Steps to Transforming Your Relationship With Money and Achieving Financial Independence: Revised and Updated for the 21st Century
by Vicki Robin , Joe Dominguez and Monique Tilford
Published 31 Aug 1992

Protecting What You Own As you practice the steps in this book, you will invariably become a much more conscious consumer. While this skill will serve you well in all aspects of your purchasing life, it’s particularly important when it comes to buying insurance. Before you spend any money in this category, be sure you understand what you are buying. For example, does the current blue-book value or condition of your car warrant the comprehensive and collision insurance you are carrying? Are you insuring heirlooms that you would never replace if they were stolen? If you have no dependents to support, do you really need life insurance? Review each of your insurance policies carefully to ensure that you are getting maximum value.

Startup CEO: A Field Guide to Scaling Up Your Business, + Website
by Matt Blumberg
Published 13 Aug 2013

INDEX A Absey, Anita The Advantage: Why Organizational Health Trumps Everything Else in Business (Lencioni) Alignment, driving aligning individual incentives with global goals five keys to “Analog analogue” B Baer, Josh Baldonero, Angela Benchmarking, value and limitations of Bilbrey, George Blank, Steven Gary Blumberg, Bob Blumberg, Mariquita Board of directors building advisory board compensating feedback process members recruiting structuring as teams compensation and review, working with board on CEO’s compensation CEO’s performance review expenses decision making and firing a CEO making difficult decisions in concert managing conflict meeting materials Board Book value of preparing for meetings, effective executive and closed sessions forward-looking agenda, building in-meeting materials protocol scheduling staff/board interactions non–board meeting time ad hoc meetings premeetings social outings serving on other boards basics of substance vs. style value of reasons for having Bootstrapping company’s cash flow customer financing Bottom-up approach “Broken Windows” theory Business pivots (changes in substance) C “Can You Say What Your Strategy Is?”

Breakout Nations: In Pursuit of the Next Economic Miracles
by Ruchir Sharma
Published 8 Apr 2012

The oligopolistic structure dates to the 1970s, when Mexico was still a largely socialist country and most industries were state monopolies, protected from foreign competition by high tariffs. As a result of the Mexican government’s debt crises in the 1980s and 1990s, these businesses were sold off to the private sector, which in practice often meant a few wealthy families with access to capital, who wound up buying the businesses at prices well below their book value. The state monopolies became private monopolies, and today the top companies in telecommunications, beer, cement, and other industries control 50 to 80 percent of the Mexican market. They have used the cash generated from captive domestic consumers to push abroad, giving birth to the Mexican multinational.

Chokepoint Capitalism
by Rebecca Giblin and Cory Doctorow
Published 26 Sep 2022

This is called “agency pricing,” a model to which Amazon was vehemently opposed, because it would strip Amazon of its power to set prices. While Apple too insisted on price caps, it was willing to allow most books to be sold for up to $14.99—50 percent more than Amazon’s price. Publishers hoped this would reinflate books’ value in consumers’ eyes and take some of the pressure off physical bookstores. The terms of the deal show just how desperate publishers had become. On the old model, they had been selling ebooks to Amazon for the same wholesale price as hardcovers, pocketing about $13.00 without having to incur the costs of print production and distribution.

Your Money: The Missing Manual
by J.D. Roth
Published 18 Mar 2010

behavior allowances and, Allowances debt snowball and, Other approaches gap in investments, Being on Your Best Behavior shopping, Save While Shopping, The Tyranny of Stuff, The Tyranny of Stuff sticking to budgets, Budgeting in Practice, Desktop Software, Sticking to a Budget, Tracking Your Spending, Envelope Budgeting, Think Yearly, Desktop Software Belsky, Ignore the Financial News Ben-Shahar, Living a Rich Life benefits, Starting on the Right Foot: Salary Negotiations, General Insurance Tips Bernstein, The No-Brainer Portfolio by William Bernstein bids eBay, Selling on eBay Big Rocks and Little Rocks prioritizing, Living a Rich Life big-ticket items, Sweating the Big Stuff bills, Doctors and Drugs Biswas-Diener, How Money Affects Happiness, It's Not About the Money blogs, Blogging Blue Book values, Buying Used blue-chip U.S. stock funds, Keep Costs Low Bluejay, The electric company bond funds, Keep Costs Low bonds, How Much Do Stocks Actually Earn?, The Tools of Investing, Stocks and Bonds, Lazy Portfolios bonuses, Budgeting in Practice bookkeeping, Tracking Your Spending borrowing money, Lending and Borrowing, True Wealth, Love and Money, The Importance of Teamwork, Joint or Separate Finances?

A Game as Old as Empire: The Secret World of Economic Hit Men and the Web of Global Corruption
by Steven Hiatt; John Perkins
Published 1 Jan 2006

Although in principle contributions from the BWIs’ First World member countries can always make up any shortfalls, in practice the World Bank likes to avoid having to solicit such contributions from its members—and thus avoid embarrassing congressional hearings where Bank officials have to explain where Togo is and why this corrupt African country deserves assistance. Initially the BWIs had proposed to fund HIPC debt relief by liquidating part of the IMF’s huge 3.22 metric tons of gold reserves, whose market value had increased to several times its book value.42 Indeed, in 1999-2000, the IMF had conducted a sale and buyback of 12.9 million ounces with Brazil and Mexico, using the profit to fund its share of HIPC’s initial costs. Now, however, another powerful set of institutional self-interests intruded. The IMF/World Bank proposals for a much larger gold sale were scuttled by lobbyists from the World Gold Council (twenty-three global gold mining companies, including Newmont Mining, AngloGold, and Barrick Gold Corporation).43 So it turned out that the BWIs had to fund debt relief on a “pay as you go” basis through bond sales and periodic pledges from their First World members.

Who Owns the Future?
by Jaron Lanier
Published 6 May 2013

Whenever an advanced information economy comes into being, this will be a rancorous intergenerational social justice issue. A grand bargain will be needed. Will everyone from the lost generations—which acquiesced to “free” and “shared” for the sake of the wealth of Siren Servers—get a huge initial credit based on all the off-the-books value that each might have provided? This intuitively sounds like a bad idea. Big payments at the start of a financial adventure often don’t work out well. People who win the lottery don’t necessarily have any of the money left after a few years. There needs to be a process in which people get used to earning their way in a new game.

Buy Now, Pay Later: The Extraordinary Story of Afterpay
by Jonathan Shapiro and James Eyers
Published 2 Aug 2021

GPG hired New Zealand stockbroker FirstNZ Capital to find buyers for its one-third shareholding in Tower Insurance. Harbour Asset and AMP Capital, the GPG institutional investor that led the calls for the GPG liquidation, were the buyers. GPG netted $106 million. From February 2011, the asset sales had raised £698 million, or $1.4 billion, above the £677 million accounting-book value of GPG when chairman Rob Campbell had announced the restructure. But there was a tinge of regret that some substantial sums had been left on the table. In a matter of months, the discarded companies began finding their way back to the marketplace. Capilano Honey floated on the ASX at a valuation of $20 million.

Very Bad People: The Inside Story of the Fight Against the World’s Network of Corruption
by Patrick Alley
Published 17 Mar 2022

In both Copenhagen and Paris, world leaders signed up to strict reductions in carbon emissions in order to keep the post-Industrial Revolution temperature rise below 2 degrees Celsius. This equates to keeping 80 per cent of known oil and gas reserves under the ground. Another way of looking at this is that the oil and mining companies are worth just 20 per cent of their book value. So how is it that these companies, with the blessing of governments across the world who want a slice of the action, keep looking for new reserves? Perhaps you don’t need to look much further than the political donations made by the fossil-fuel industry. In 2020, of the US$110 million of oil-industry donations that flowed to the candidates fighting for seats in Congress or for the presidency itself, just over US$3 million went to Donald Trump, but Biden’s US$1.5 million was not insignificant.

Billionaires' Row: Tycoons, High Rollers, and the Epic Race to Build the World's Most Exclusive Skyscrapers
by Katherine Clarke
Published 13 Jun 2023

Ultimately, she chose to walk away from the unit at the close of the year. Since neither Harry nor Linda wished to keep their house in East Hampton, the judge, valuing it at around $19 million, ordered that it be sold and the proceeds distributed between them fifty-fifty. Linda would keep the couple’s books, valued at more than $850,000; the silver, valued at more than $400,000; and the jewelry, valued at $3.84 million. Harry got the cars, valued at $385,000, and, much to his delight, the award-winning yacht. As the trial dragged on for months, with the legal bills piling up and the couple relegated to opposite ends of a long wooden table in a Tribeca courtroom, relations between the pair seemed even more hostile than ever.

Blood, Iron, and Gold: How the Railways Transformed the World
by Christian Wolmar
Published 1 Mar 2010

But how do you value a railway? That was another difficult area and the government’s opponents argued that it had overpaid for its purchase. There was no independent assessment of its value and the company had used the old trick of putting reparations and maintenance on to the capital account, increasing the book value of the company. Nevertheless, the state probably paid less than if it had built the whole rail system itself. The purchase of the Alta Italia Railway Company from the Rothschilds in 1878 highlighted the complexities governing the financial relationship between states and their railways, as well as the political issues that are still being thrashed out across the world in the debate over rail privatization.

Last Man Standing: The Ascent of Jamie Dimon and JPMorgan Chase
by Duff McDonald
Published 5 Oct 2009

Integration was painfully slow, and management couldn’t figure out how to run the thing effectively as a single entity. The firm’s private equity unit got crushed at the end of the 1990s bubble. Too many telecom loans led to more pain, and trading results were erratic. The company’s 2001 return on equity was a puny 0.24 percent. By 2002 the stock was trading for 70 percent of its book value, a pitifully low ratio at the time. Then it got worse. The Enron debacle had cost the firm $135 million in fines in July 2003, but there was an even greater cost. The once august institution was now just another Wall Street firm on the make. Fifty-nine years old at the start of 2003, Harrison began to focus on identifying a capable successor.

The Making of an Atlantic Ruling Class
by Kees Van der Pijl
Published 2 Jun 2014

Erhard, who had studied the matter for years, hypocritically spoke on behalf of the indignant small savers, but in reality he was in favour of the shock treatment in this matter.119 The DM-balance law of 1949 more particularly allowed industrial entrepreneurs to depreciate old and war-damaged plant and equipment anew at a book value to be established by the owners. The net result of these drastic measures was to ‘reclaim Western Germany to free and capitalist ways of business’, as Fortune commented.120 By 1947, liberal capitalists and ideologues in the German bourgeoisie accepted Atlantic integration as the new state of affairs even if this implied the definitive loss of Eastern Germany for capitalism.

The Divide: American Injustice in the Age of the Wealth Gap
by Matt Taibbi
Published 8 Apr 2014

In order to do that, Barclays had to settle on a price for all the stuff in Lehman’s financial warehouse, which was why all those bankers were crunching numbers at full speed, trying to price Lehman’s books. And at the end of that Monday, all those hundreds of people in those thirty-second-floor workstations did in fact come up with the rough outlines of a deal. They came up with what is called a “book value” for Lehman’s inventory—a value that matched what Lehman’s Treasury bills and mortgage-backed securities and currencies and other stuff, all mashed together, might have fetched on the street. What they did was, they found $70 billion worth of stuff that was actually worth something (assets) and then matched it to $70 billion worth of bills Lehman still had to pay (liabilities).

Misbehaving: The Making of Behavioral Economics
by Richard H. Thaler
Published 10 May 2015

Adjusting for risk using the standard methods of the profession made our anomalous findings even more anomalous! To rescue the no-free-lunch aspect of the EMH, someone would have to come up with another way to show that the Loser portfolio was riskier than the Winner portfolio. The same would be true for any measure of “value,” such as low price/earnings ratios or low ratios of the stock price to its book value of assets, an accounting measure that represents, in principle, what shareholders would get if the company were liquidated. By whatever measure one used, “value stocks” outperformed “growth stocks,” and to the consternation of EMH advocates, the value stocks were also less risky, as measured by beta.

The Trade Lifecycle: Behind the Scenes of the Trading Process (The Wiley Finance Series)
by Robert P. Baker
Published 4 Oct 2015

DV01 can be measured across multiple trades by taking each underlying and changing its price by a small amount, calculating the change in aggregate value of trades. For example, suppose aluminium has a spot price of 2230 dollars per tonne. The DV01 of aluminium would value the book with current prices (say it is 5,030,440 dollars). The aluminium price would be moved to 2231 and the book value recalculated (say it is now 5,037,625). Then the DV01 of aluminium is 7185 dollars (5,030,440 – 5,037,625). The DV01 can be analysed for each underlying to give a feel for where the market risk is distributed. In addition to DV01 there are other first and second order risk measures such as time decay (theta), rate of change of delta (gamma), correlation between market forces, default event risk, volatility (vega) and interest rate risk (rho).

How I Became a Quant: Insights From 25 of Wall Street's Elite
by Richard R. Lindsey and Barry Schachter
Published 30 Jun 2007

We quickly realized that if the value and momentum anomalies we had studied in academia for U.S. stock selection sprung from sustainable effects (risk premia and/or investor biases), then a strong working hypothesis was they would work for other decisions. We quickly realized that we could treat countries as portfolios of individual stocks. We could then buy (or overweight) the cheaper ones (France’s price-to-book, for instance, is the market capitalization of all French stocks divided by the summed book value of all French stocks; if France is selling for a 1.0 and Germany a 2.0 then Germany is relatively expensive11 ) with better momentum and sell (or underweight) the expensive countries with bad momentum. It turned out that the value and momentum strategy for picking countries performed quite well.12 The practical upshot was we were successful in our first task as a new group, but I still think the theoretical implication was more important.

Django Book
by Matt Behrens
Published 24 Jan 2015

/usr/bin/env python import sqlite3 connection = sqlite3.connect(':memory:') print "Content-Type: text/html\n" print "<html><head><title>Books</title></head>" print "<body>" print "<h1>Books</h1>" print "<ul>" cursor = connection.cursor() cursor.execute("CREATE TABLE books (name text, pub_date text);") cursor.execute("INSERT INTO books VALUES ('Django','2013-01-01')") cursor.execute("SELECT name FROM books ORDER BY pub_date DESC LIMIT 10") for row in cursor.fetchall(): print "<li>%s</li>" % row[0] print "</ul>" print "</body></html>" connection.close() First, to fulfill the requirements of CGI, this code prints a “Content-Type” line, followed by a blank line.

Science in the Soul: Selected Writings of a Passionate Rationalist
by Richard Dawkins
Published 15 Mar 2017

The values of science and the science of values*1 THE VALUES OF SCIENCE; what does this mean? In a weak sense I shall mean – and shall take a sympathetic view of – the values that scientists might be expected to hold, insofar as these are influenced by their profession. There is also a strong meaning, in which scientific knowledge is used directly to derive values as if from a holy book. Values in this sense I shall strongly*2 repudiate. The book of nature may be no worse than a traditional holy book as a source of values to live by, but that isn’t saying much. The science of values – the other half of my title – means the scientific study of where our values come from. This in itself should be value-free, an academic question, not obviously more contentious than the question of where our bones come from.

The World for Sale: Money, Power and the Traders Who Barter the Earth’s Resources
by Javier Blas and Jack Farchy
Published 25 Feb 2021

On 1 September 1994, Marc Rich + Co officially became Glencore International, and, two months later, the company announced it had severed all ties with its fugitive founder. Rich was shocked. In just a year and a half, his former employees had secured full ownership of the company, and removed his name from the door. And they had done so at a bargain basement price, funded in part by the firm’s own resources and trading profits. The company’s book value, shrunken by the departures of its founders and its zinc loss, was a little under $1 billion, according to several former partners. That meant that Rich, for his share of around 70%, received about $700 million. 27 ‘I was weak and the others could sense it, so they took advantage,’ he later told his biographer.

The House of Morgan: An American Banking Dynasty and the Rise of Modern Finance
by Ron Chernow
Published 1 Jan 1990

The linchpin was a Morgan-led effort to raise a new $4.4-billion loan for Brazil, the biggest in Morgan history. The plan set a fateful precedent of “curing” the debt crisis by heaping on more debt. In this charade, bankers would lend more to Brazil with one hand, then take it back with the other. This preserved the fictitious book value of loans on bank balance sheets. Approaching the rescue as a grand new syndication, the bankers piled on high interest rates and rescheduling fees. It was hard to stop the greed so prevalent for so many years. The Europeans watched sourly from the sidelines. “It was very much an American party,” said Guy Huntrods, a dogged, balding, talkative banker who became British point man on Latin American debt.

…

In shedding the bank’s securities business and swiftly restoring profitability, Craven only added to its allure as a takeover target. And so the bank that had specialized in hostile takeovers found itself in November the object of an unwelcome embrace from Banque Indosuez of France. Craven brought in Deutsche Bank as a white knight and extracted a rich price for the firm: over $1.4 billion, or more than twice its book value. This breathtaking bid settled the contest. Craven, the consumate negotiator, became the first foreigner invited onto the Deutsche Bank board. The hoopla was spiked by the grisly slaying of Deutsche Bank head Alfred Herrhausen by terrorists. The generous settlement also obscured the fact that 151 years of noble independence had been suddenly swept away.

Inflated: How Money and Debt Built the American Dream
by R. Christopher Whalen
Published 7 Dec 2010

Even in the late 1980s, most scholars and government officials admitted that loans to countries like Brazil, Argentina, and Mexico would have to be written off, as J.P. Morgan did in 1989. But Corrigan continued to push for new lending to indebted countries in an effort to bolster the fiction that loans made earlier could still be carried at par or book value, 100 cents on the dollar. Even by the early 1990s, when some analysts declared the debt crisis to be over, the secondary market bid prices for Latin debt ranged from 65 cents for Mexico to 45 cents for Argentina and 25 cents for Brazil. “Anything approaching a ‘forced’ write-down of even a part of the debt—no matter how well dressed up—seems to me to run the risks of inevitably and fatally crushing the prospects for fresh money financing that is so central to growth prospects of the troubled [less developed countries (LDCs)] and to the ultimate restoration of their credit standing,” Corrigan wrote in the New York Fed Quarterly Review in 1988.

Gamers at Work: Stories Behind the Games People Play
by Morgan Ramsay and Peter Molyneux
Published 28 Jul 2011

Doug: We bought a number of companies over the years, usually for their product lines. In the case of Synapse, it was to give us products in the Commodore and Atari worlds, where we had no representation. All the companies tended to know one another, and we all frequently talked about joining forces. In the end, we took over Synapse but paid nothing for it, as it had a negative book value. I don’t think their products did very well. Some acquisitions, like the one that brought us Family Tree Maker, did very well. Others, like PC Globe and TMaker, were more modest successes. Ramsay: What were the events that led to the company’s going public in 1991? Gary: I had already left Brøderbund by that time, so I was not involved in this decision.

Handbook of Modeling High-Frequency Data in Finance
by Frederi G. Viens , Maria C. Mariani and Ionut Florescu
Published 20 Dec 2011

The value of internal organization, management quality, or expected agency costs is assumed to explain the difference. Values of Tobin’s Q above one indicate that the market perceives the firm’s internal organization as effective in leveraging company assets, while a Tobin’s Q below one shows that the market expects high agency costs. We used as a proxy for Tobin’s Q the ratio of book value of debt plus market value of common stocks, and preferred stocks to total assets.5 We also included insider ownership (T_Insider) and variables related to executive compensation for the top five senior managers. The variables of executive compensation are total compensation for officers (TotalCompExec) and CEOs (totalCompCEO); value of options for officers (OptionAllValExec), CEOs (TotalValOptCEO), and directors (OptionsDirectors); value of stock options for officers (OptionAllValExec); fees paid for attendance to board of directors meeting (TotalMeetingPay); annual cash paid to each director (PayDirectors); indicator variables to specify if directors are paid additional fees for attending board committee meetings (DcommFee); and annual number of shares granted to nonemployee directors (StockDirectors).6 We used the main features and thresholds of the representative ADT as indicators and targets of the board BSC, respectively.

India's Long Road
by Vijay Joshi
Published 21 Feb 2017

Recognizing and providing for bad loans will inevitably mean losses for banks and a large blow to their equity capital; so, there will have to be a capital infusion (over and above what is required to fulfil the Basel 3 norms). Asking PSBs to raise more money in the market to shore up their equity will not be feasible until their balance sheets have been restored to normality. (These banks have been quoted at well below their book values for years: the market is only too well aware of their rank inefficiencies.) The government’s planned capital infusions in the 2016/​17 and future budgets are reckoned by knowledgeable observers to be grossly insufficient to meet the scale of the problem. However, if growth does not pick up soon, further recapitalization by the government will become unavoidable.

From Counterculture to Cyberculture: Stewart Brand, the Whole Earth Network, and the Rise of Digital Utopianism
by Fred Turner
Published 31 Aug 2006

No sooner had the magazine begun to appear on newsstands than Rossetto and his team began to expand into online ventures, book publishing, television production, and multilingual overseas editions of the magazine.61 That ambition in turn led Rossetto and his team to try to capitalize on the magazine’s reputation. In May of 1996, they did what so many Internet start-ups were doing: they hired Goldman Sachs to take them public. Most magazine and publishing companies typically sell at three times their book value. At this rate, Wired should probably have sold for between $6 million and $10 million.62 Goldman Sachs floated an initial public offering that valued Wired Ventures at $447 million. Had it been accepted, Louis Rossetto alone would have pocketed $70 million. When they could not find enough takers at that price, Goldman Sachs withdrew the IPO.

European Spring: Why Our Economies and Politics Are in a Mess - and How to Put Them Right
by Philippe Legrain
Published 22 Apr 2014

Banks don’t want to admit to these problem loans, still less make provisions for likely losses on them, because they don’t want to have to raise extra loss-absorbing capital, which would reduce returns on equity, the basis on which bonuses for senior managers tend to be paid. Markets realise that many banks are in a worse state than they claim: their stockmarket value is often (much) less than the book value of their shares on their balance sheet. But unfortunately, financial regulators and the government have not forced them to come clean, still less to plump up their inadequate capital buffers, in part because they have bought the bankers’ lie that this would curb lending and hence stifle growth.

Accelerando
by Stross, Charles
Published 22 Jan 2005

The recording Mafiya goon glares at him. Pam glares at him. Annette stands against one wall, looking amused. "Perhaps you'd like to sort it out between you?" he asks. Aside, to Glashwiecz: "I trust you'll drop your denial of service attack before I set the Italian parliament on you? By the way, you'll find the book value of the intellectual property assets I deeded to Pamela – by the value these gentlemen place on them – is somewhere in excess of a billion dollars. As that's rather more than ninety-nine-point-nine percent of my assets, you'll probably want to look elsewhere for your fees." Glashwiecz stands up carefully.

The Default Line: The Inside Story of People, Banks and Entire Nations on the Edge
by Faisal Islam
Published 28 Aug 2013

Effectively, the €5 billion of Greek deposits in Cypriot banks were ring-fenced and guaranteed for Greeks, even though the bulk of the losses were incurred in Greece. So Greece would keep the deposits, the Cypriots would get an even more drastic haircut, and Cyprus would get the rotten liabilities. The Greek units of both Laiki and BoC would be sold to the Piraeus bankers waiting at the Hilton at a fraction of their book value. Not only had Piraeus itself been saved by EU bailout money partly funded by Cyprus, but the actual fire-sale purchase of the Greek units of Laiki and the Bank of Cyprus was funded by the Hellenic Financial Stability Fund, itself entirely funded by EU bailout cash. The Eurogroup was willing to give Greece bailout cash (partly backed by Cyprus) to support its parts of the Cypriot system.

On the Wrong Line: How Ideology and Incompetence Wrecked Britain's Railways
by Christian Wolmar
Published 29 May 2005

On the other hand, the regional operators, for whom access charges were a huge proportion of their costs, found that the compensation paid by Railtrack more than made up the loss of income from passengers not travelling. 8 Financial Times, 18 April 2001. 9 ‘Insider’, Rail, 4-17 April 2005. 10 Sea Containers chairman James Sherwood reckoned it was the most complicated deal he had eves been involved in during his long business career. 11 Railway Finance Monitor, TAS Publications and Events Ltd, April 2004. 12 Interim agreement between SRA and the Virgin Rail Group, SRA press release, 22 July 2002. 13 Modern Railways, August 2003, p.19. 14 Dieter Helm, ‘What to do about the Railways, submission to the rail review, New College, Oxford, 17 March 2004, available at www.dieterhelm.co.uk 15 SRA press release, 1 July 2002. 16 House of Commons Select Committee on Transport, The Future of the Railway, March 2004, par. 123, available at www.parliament.the-stationery-office.co.uk/pa/cm200304/cmselect/cmtran/ 145/14502.htm 17 Ibid. 18 Ibid., par. 122. 19 BBC News website, 11 December 2002. 20 Quoted on the unofficial Connex South East website at www.csnews.net/connexthrownout.html 21 22 Ben Webster, ‘Most punctual commuter trains are those run by the state’, The Times, 18 November 2004. 23 Interview with author. 24 Robert Lea, ‘Fury at 20 per cent rise in train firms profits’, Evening Standard, 27 January 2005. 25 Independent, 25 February 2005. 26 In net present value, in other words rolled up into a lump sum discounted for future inflation at a rate of 3.5 per cent per year. 27 SRA, Annual Report 2002/03, p.13. CHAPTER 14: WHY IS THE RAILWAY SO EXPENSIVE? (2) 1 Department of Transport, Railway Privatisation: Passenger Rolling Stock, January 1993. 2 That was the book value, representing the depreciated historic cost. 3 Richard Bowker, ‘Who pays for the railways’, Rail 515, 8-21 June 2005. 4 Renaissance Delayed: New Labour and the railways, Catalyst 2004, p. 40. 5 Christopher Irwin, ‘Roscos: success or excess?’, unpublished paper prepared for Rail Passenger Council. 6 Office of the Rail Regulator, Review of the rolling stock market, report to the Deputy Prime Minister, May 1998, p. 9. 7 Statement to File on 4 on train leasing companies, BBC Radio 4, 27 January 2004. 8 Interview with author. 9 The third rosco, HSBC, is all electric. 10 Strategic Rail Authority, Community Rail Development Strategy, November 2004. 11 Christopher Irwin, ‘Roscos; success or excess?’

Chief Engineer
by Erica Wagner

And the papers relating to the sale in the archive at Rutgers University are only there by happy accident. Washington, in the course of going through his records, describes the contents of the folders. “Correspondence in relation to selling the business of the John A. Roebling’s Sons Co to the U.S. Steel Coa for $8,000,000 (their offer) which fortunately fell through. Today—1912—book value is over $30,000,000.” But there is also a note appended, written on Waldorf Astoria stationery. “This correspondence should be destroyed—It never amounted to anything—We fortunately did not sell our Mill.” No marriage is an ideal marriage. No couple can really imagine the road ahead when they set out on the journey: what would Emily’s life have been like if John Roebling had not died in 1869?

Your Computer Is on Fire
by Thomas S. Mullaney , Benjamin Peters , Mar Hicks and Kavita Philip
Published 9 Mar 2021

A widely noted study concluded that between 2008 and 2014, the increase in “financial inclusion” afforded by mobile money lifted 194,000 households, or around 2 percent of Kenya’s population, out of poverty.40 However, this result has been strongly criticized as a “false narrative” that fails to account for such negative effects as increasing “over-indebtedness” among Kenyans, high costs for small transactions, and the incursion of social debts related to kinship structures which may outweigh any economic advantages.41 Facebook and WhatsApp Facebook, which opened for business in 2004 and issued its IPO in 2012, is currently the globe’s sixth largest publicly traded company, with a book value of over $510 billion in 2019. With more than 2.4 billion monthly active users—nearly one-third of the world’s total population—it is currently the world’s largest (self-described) “virtual community.” At this writing in 2019, Facebook founder Mark Zuckerberg is all of thirty-five years old. Facebook presents itself as the ultimate platform, filled largely with content provided by users.

The Volatility Smile
by Emanuel Derman,Michael B.Miller
Published 6 Sep 2016

Imagine the hedging errors that could arise when you don’t know future volatility and therefore your hedge ratio is incorrect not just because it is carried out discretely, but also because you don’t know the appropriate volatility to use. The sensible way to mitigate such large hedging errors is to run a large book of options whose individual errors tend to cancel each other, so that the hedging errors of the portfolio are a small fraction of a much bigger book value. AN EXAMPLE As an example of what happens when hedging volatility and realized volatility differ, and you hedge continuously at the implied volatility, consider replicating a call option that is initially at-the-money with one month to expiration. Assume interest rates and dividend yields are zero, and that the realized volatility of the stock price is 30%.

Ashes to Ashes: America's Hundred-Year Cigarette War, the Public Health, and the Unabashed Triumph of Philip Morris
by Richard Kluger
Published 1 Jan 1996

More resigned than resentful, Reynolds apparently stated his reluctance to deal on bended knee with any master, and Duke must have assured him that it was Reynolds’s knowledge and drive he was willing to invest in, not a lot of machines. The price was set at $3 million, a slight premium for two-thirds of a business with a book value of about $4 million, and the deal was done. Reynolds was hardly grateful, though he cannot be said to have sold under duress, and felt it essential to tell the world that the transaction was not what it seemed. Soon afterward, he told his friend Josephus Daniels, North Carolina’s leading newspaper editor and a populist Democrat who had railed in print against Duke’s autocratic ways, “Sometimes you have to join hands with a fellow to keep him from ruining you and to get the under hold yourself. … I don’t intend to be swallowed.

…

No one else could or wanted to match it, as Hans Storr reeled in his loan pledges, some 70 percent of which came from foreign banks, to meet the buyout price of $5.8 billion and make Philip Morris the biggest U.S. consumer products company, a title RJR Nabisco had held for just three months. A number of analysts wrote that PM had overpaid for General Foods—the price was 3.5 times book value (the difference between a company’s assets and liabilities), compared with the 3.2 ratio Reynolds had paid for higher-earning Nabisco. But Maxwell insisted that it was a fine catch and that the GF brands had great global potential. Probably a more candid assessment was Storr’s retrospective remark that “From day one we realized General Foods was a company with real problems that would be a big headache.”

WTF?: What's the Future and Why It's Up to Us
by Tim O'Reilly
Published 9 Oct 2017

For a company like Uber, which has no profits yet but is valued at $68 billion by investors, the ratio is essentially infinite. That leverage makes stock an incredibly powerful currency, which swamps the purchasing power of the ordinary currency used in the market of real goods and services. Amazon’s profits in 2016 were just shy of $2.4 billion, and its book value (the actual value of its cash, inventories, and other assets less its liabilities) $17.8 billion, yet its market capitalization at the end of the year was $356 billion. George Goodman, a financial writer who published under the pseudonym Adam Smith, calls this “supermoney.” (In his preface to the Wiley Investment Classics edition, Warren Buffett compared Goodman’s 1972 book of that name to a perfect game in baseball.)

New Market Wizards: Conversations With America's Top Traders
by Jack D. Schwager
Published 28 Jan 1994

The next two months were very rough because I was fighting the market, and prices were still going up. What determined the timing of your shift from bullish to bearish? It was a combination of a number of factors. Valuations had gotten extremely overdone: The dividend yield was down to 2.6 percent and the price/book value ratio was at an all-time high. Also, the Fed had been tightening for a period of time. Finally, my technical analysis showed that the breadth wasn’t there—that is, the market’s strength was primarily concentrated in the high capitalization stocks, with the broad spectrum of issues lagging well behind.

Digital Accounting: The Effects of the Internet and Erp on Accounting
by Ashutosh Deshmukh
Published 13 Dec 2005

Regional managers can view performance of the region, profit centers can monitor their profit and loss statements, and transactional data can be viewed in a format desired by the user. Users can essentially monitor their slice of business on a pre-defined metrics. Ad-hoc analyses can also be performed. • Assets data mart: Assets information, such as book value, location, depreciation methods, lease costs and accumulated depreciation, can be obtained instantaneously. The assets can be viewed by segments, departments, costs centers or locations. Changes in policies can be administered from this central location, making policy compliance easier. • Lease management data mart: This data mart contains information on operating and capital leases and related assets.

A Generation of Sociopaths: How the Baby Boomers Betrayed America
by Bruce Cannon Gibney
Published 7 Mar 2017

Sometimes the auditors simply committed fraud, as happened when Bernie Madoff’s accountants helped his Ponzi scheme. More usually, it took the form of industry opinions that allowed substantial and unwise discretion on the part of financial officers. Older and more conservative standards, like holding assets at book value, gave way to mark-to-market and mark-to-model accounting. The former allowed firms to price their assets at prevailing market prices (fair enough) and received strong support from financial firms when the market was performing well. The latter—well, the industry terminology for mark-to-model was “mark-to-myth.”

The Founders: The Story of Paypal and the Entrepreneurs Who Shaped Silicon Valley
by Jimmy Soni
Published 22 Feb 2022

It was also time for a serious address, and the team moved into a leased office space at 394 University Avenue. From its new vantage, X.com trained its sights on other retail and dot-com bank competitors. “There were a few other internet banks out there in the marketplace at the time. And they were trading for roughly four times book value per share. And the regular banks are trading around two times. So there’s this huge premium for [internet banks],” one early X.com employee recalled. “And so Elon’s business plan was basically ‘I’m an internet guy. I can do this. This will be the first Silicon Valley–funded bank, so therefore, it will be more successful than all the others.’ ” One of the team’s online targets was NetBank, which was founded in 1996 and advertised itself as the digital bank of the future.

Troublemakers: Silicon Valley's Coming of Age
by Leslie Berlin
Published 7 Nov 2017

Dan Flystra, “The Creation and Destruction of VisiCalc,” edesber.com/visicorp-history; Apple Computer Prospectus, Dec. 12, 1980: 13; Dan Bricklin of VisiCalc, quoted in Daniel Terdiman, “The Untold Story Behind Apple’s $13,000 Operating System,” http://www.cnet.com/news/the-untold-story-behind-apples-13000-operating-system/. 9. Anthony Hilton, “Drop-Out Duo Cash in $460m Chip,” Sunday Times, date unknown. 10. State regulators required a company’s book value to be at least 20 percent of its market value. 11. Robert J. Cole, “An ‘Orderly’ Debut for Apple,” New York Times, Dec. 13, 1980. Another 400,000 shares were sold by investors not in management at Apple. 12. Carter, interview by author, Jan. 7, 2016. 13. Joe Shelpela (Personnel) to Distribution, Sept. 25, 1980.

Bill Marriott: Success Is Never Final--His Life and the Decisions That Built a Hotel Empire
by Dale van Atta
Published 14 Aug 2019

Besides, it takes ten to twelve years for a hotel to pay back its investment, and we can’t wait that long if we want to hit our 20 percent annual growth target. Al has a way around that.” Checchi recited how Conrad Hilton had pioneered the management contract idea in the 1950s when the only way he could expand overseas was to find foreign investors. But those contracts did not pay well. Checchi suggested selling a bundle of hotels below their book value in trade for healthy management contracts on those hotels. The cash from the sale would be used to build more hotels. The plan had some complicated twists to assure uninterrupted growth in corporate earnings to please the stockholders. “I’m not a sophisticated financial person, but I understood Al reasonably well,” Bill recalled, and he approved the concept.

Thinking, Fast and Slow
by Daniel Kahneman
Published 24 Oct 2011

students in California and in the Midwest: Asian students generally reported lower satisfaction with their lives, and Asian students made up a much larger proportion of the samples in California than in the Midwest. Allowing for this difference, life satisfaction in the two regions was identical. How much pleasure do you get from your car?: Jing Xu and Norbert Schwarz have found that the quality of the car (as measured by Blue Book value) predicts the owners’ answer to a general question about their enjoyment of the car, and also predicts people’s pleasure during joyrides. But the quality of the car has no effect on people’s mood during normal commutes. Norbert Schwarz, Daniel Kahneman, and Jing Xu, “Global and Episodic Reports of Hedonic Experience,” in R.

Aerotropolis
by John D. Kasarda and Greg Lindsay
Published 2 Jan 2009

The airline has turned a profit twenty-three years in a row according to its independent accountants, including a $964-million-dollar profit last year—more than all American carriers combined. It carries more international passengers than any U.S. airline. As of this writing, Emirates has 141 planes in the air and more than 200 on order or optioned, with a book value of $70 billion. Despite Dubai’s debt woes, financing hasn’t been a problem. The list includes the A380s and more than a hundred A350 XWBs, Airbus’s still largely conceptual knockoff of Boeing’s 787. Emirates won’t take receipt of those until sometime in the second half of the decade, underscoring that it’s in this for the long haul.

More Money Than God: Hedge Funds and the Making of a New Elite
by Sebastian Mallaby
Published 9 Jun 2010

The Fortune cover story appeared on September 28, 1987, and its title posed the question of the moment. “Are stocks too high?” the magazine asked; after the long bull market that had begun at the start of the decade, the stocks in Standard & Poor’s index of four hundred industrial companies sold at an average of three times book value, the highest level since World War II. Fortune introduced Soros as its first expert witness on the stock market’s level, and it explained that Soros was sanguine. The fact that trend followers had driven the market upward did not mean that the crash was coming soon: “Just because the market is overvalued does not mean it is not sustainable,” Soros declared delphically.

For the Win
by Cory Doctorow
Published 11 May 2010

It’s as close to a bonus as this fucking company’s going to pay any of us.” They looked at him quizzically, with some alarm and he smiled and spread his hands. “Ha ha, only serious boys. Really—take some stuff home. You’ve earned it. Try and grab something from the ride-system itself, that’s got the highest book-value.” They left behind a slim folder with production notes and estimates, suppliers who would be likely to bid on a job like this. He’d need a marketing plan, too—but this was farther than he ever thought he’d get. He could show this to legal and to the board, and yes, to Wiener and the rest of the useless committee.

The Man Behind the Microchip: Robert Noyce and the Invention of Silicon Valley
by Leslie Berlin
Published 9 Jun 2005

In 1974, James Treybig started Tandem Computer, a company that made nearly fail-safe minicomputers by linking 16 processors and programming them to back each other up in case of failure. Tandem’s primary backer was Kleiner Perkins, where Treybig had worked before starting the company. The company went public in 1980—Noyce’s broker Bob Harrington arranged for employees to participate in his sameday stock-sale program—and within three years had a book value of $1 billion. (It was sold to Compaq computer in 1997 for $3 billion.)54 Video game maker Atari was started on $500 in 1972 and within three years was among the most recognized names in American business. Several of its more complex games ran on Intel microprocessors. The home version of Atari’s video-tennis game Pong was the bestselling Christmas gift of 1975, and the Atari 2600, introduced in 1976, ushered in the era of video console games, in which a person could purchase any number of games on cartridges that plugged into hardware connected to a television set.

Extreme Money: Masters of the Universe and the Cult of Risk
by Satyajit Das
Published 14 Oct 2011

The accounting regulator would arbitrate when the crisis discount was abnormally high, allowing a switch from market value to fair value based on a mark-to-model approach.44 The proposal highlighted French strengths first identified by Napoleon III: “We do not make reforms in France; we make revolution.” Radical proposals retreated to the position before market value accounting. Instruments held to maturity would be valued at book value, adjusted for impairments and trading instruments at market. Accountants decided that it was better to manipulate the values and pretend that there were no losses in preference to inconvenient truths. Standard setters unveiled a more pressing project, plain English accounting. To simplify the language of accounting, they proposed people who owe us money instead of debtors.

Appetite for America: Fred Harvey and the Business of Civilizing the Wild West--One Meal at a Time
by Stephen Fried
Published 23 Mar 2010

Probably as a way to protect company stock from the Drage lawsuit, some of Kitty’s voting shares and some of the voting shares in Freddy’s estate were quietly reissued by the firm as non-voting shares. That measure, obviously designed to shield the family business, may have balanced the playing field between Kitty and Byron. But, still, if she decided to sell, she could demand much more than the book value of her shares in the harsh economy of that time. She could ask for so much money that maybe her Uncle Byron would realize it made no sense to cut her—and the Kansas City Harveys—out of their own business. DRAGE V. HARVEY was a gruesome lawsuit. The winner had to prove it was her relative who had lived the longest in that carnage, and had more time to suffer the most horrible death made possible by modern technology.

Money and Government: The Past and Future of Economics
by Robert Skidelsky
Published 13 Nov 2018

Hyman Minsky, an economist whose work was completely ignored until after the crash, argued that financial stability leads inevitably to financial fragility, as optimism turns to ‘speculative euphoria’ and markets become ‘dominated by speculation about sentiments and movements in the market rather than about fundamental asset values’.18 But these arguments had no place in the neo-classical hegemony and so, despite its glaring theoretical gaps, the EMH became the intellectual underpinning of financial market deregulation. 313 M ac roe c onom ic s i n t h e C r a s h a n d A f t e r , 2 0 0 7 – ‘Mark-to-market (M2M) and value at risk (VaR) frameworks offer accurate measures of value and thus are appropriate ways of managing risk’ Mark-to-market accounting aims to estimate the ‘fair value’ of an asset by reference to its current market price, rather than what it cost the investor to buy. If an investor owns ten shares of a stock bought for $4 a share and that stock now trades at $6, its mark-to-market value is 50 per cent more than its book value. But mark-to-market accountancy offers an accurate measure of value only if markets never get it wrong. In fact they often do. During a boom, confidence pushes up the market prices of stocks and other assets. The ensuing increase in reported wealth further bolsters confidence, and encourages investors to take more risks and increase their lending and speculative activities.

The Signal and the Noise: Why So Many Predictions Fail-But Some Don't
by Nate Silver
Published 31 Aug 2012

In the paper, he demonstrated that in a market plagued by asymmetries of information, the quality of goods will decrease and the market will come to be dominated by crooked sellers and gullible or desperate buyers. Imagine that a stranger walked up to you on the street and asked if you were interested in buying his used car. He showed you the Blue Book value but was not willing to let you take a test-drive. Wouldn’t you be a little suspicious? The core problem in this case is that the stranger knows much more about the car—its repair history, its mileage—than you do. Sensible buyers will avoid transacting in a market like this one at any price. It is a case of uncertainty trumping risk.

Tcl/Tk, Second Edition: A Developer's Guide
by Clif Flynt
Published 18 May 2003

Example 14.9 Script Example load /usr/local/lib/libmysqltcl.so # Connect to database set handle [mysqlconnect -db clif1] # Create two new tables set createCmds { {CREATE TABLE books ( first CHAR(20), last CHAR(20), title CHAR(50), publisher INTEGER, ID INTEGER);} {CREATE TABLE publishers ( name CHAR(50), id INTEGER);} } foreach createCmd $createCmds { set result [mysqlexec $handle $createCmd] puts “Create Table result: $result” } # Define data for tables set bookData { {’Brent’, ’Welch’, \ ’Practical Programming in Tcl/Tk’, 2, 1} {’Dave’, ’Zeltserman’, \ ’Building Network Management Tools with Tcl/Tk’, 2, 2} {’Mike’, ’Doyle’, \ ’Interactive Web Applications with Tcl/Tk’, 1, 3} {’Clif’, ’Flynt’, \ 589 590 Chapter 14
Extensions and Packages ’Tcl/Tk: A Developer\’s Guide’, 1, 4} } set publisherData { {’Morgan Kaufmann’, 1} {’Prentice Hall’, 2} } # Insert data into the tables. foreach book $bookData { set result [mysqlexec $handle “INSERT INTO books VALUES ($book)”] puts “Insert result: $result” } foreach pub $publisherData { mysqlexec $handle “INSERT INTO publishers VALUES ($pub)” } # And now extract data and generate a simple report. set fail [catch \ {mysqlsel $handle “SELECT * FROM books” -list } bookList] if {$fail} { error “SQL error number $mysqlstatus(code) message: $bookList” “” } foreach book $bookList { foreach {first last title pubId id} $book {} foreach {pubName pubID} [mysqlsel $handle \ “Select * from publishers where ID=$pubId” -flatlist] {} puts [format “%-12s %-30s \n %-30s” \ $last $title $pubName] } Script Output Create Create Insert Insert Insert Insert Welch Table result: 0 Table result: 0 result: 1 result: 1 result: 1 result: 1 Practical Programming in Tcl/Tk Prentice Hall Zeltserman Building Network Management Tools with Tcl/Tk Prentice Hall Doyle Interactive Web Applications with Tcl/Tk 14.6 VSdb Package Flynt Academic Press Professional Tcl/Tk, A Developer’s Guide Morgan Kaufmann 14.6 VSdb Package Language Tcl Primary Site http://sourceforge.net/projects/tclvs/ Original Author Steve Wahle Contact creat@lowcountry.com, Scott Beasley Tcl Revision Supported Tcl: 8.x; Tk: 8.x Supported Platforms UNIX, Windows The VSdb package is a small, pure Tcl database package that can easily be merged into an application that needs to be portable.

Reminiscences of a Stock Operator
by Edwin Lefèvre and William J. O'Neil
Published 14 May 1923

A “member of the finance committee,” in a double-leaded manifesto, expresses his astonishment at the public’s astonishment over the stock’s rise. The only astonishing thing is the stock’s moderation in the climbing line. Anybody who will analyse the forthcoming annual report can easily figure how much more than the market-price the book-value of the stock is. But in no instance is the name of the communicative philanthropist given. 23.7While Lefevre paints a portrait here of omnipotent directors who used their industry knowledge to cheat the public, the truth is that even in the 1920s being an insider no instant path to riches. There were plenty of corporate titans who blew their fortunes in the market.

The Data Warehouse Toolkit: The Definitive Guide to Dimensional Modeling
by Ralph Kimball and Margy Ross
Published 30 Jun 2013

Although there is some theoretical data redundancy between transaction and snapshot tables, you don't object to such redundancy because as DW/BI publishers, your mission is to publish data so that the organization can effectively analyze it. These separate types of fact tables each provide different vantage points on the same story. Amazingly, these three types of fact tables turn out to be all the fact table types needed for the use cases described in this book. Value Chain Integration Now that we've completed the design of three inventory models, let's revisit our earlier discussion about the retailer's value chain. Both business and IT organizations are typically interested in value chain integration. Business management needs to look across the business's processes to better evaluate performance.

Den of Thieves
by James B. Stewart
Published 14 Oct 1991

The SEC, in particular, was worried about how the stock market would react to any rumors of Boesky's imminent demise. The great bull market of the 1980s had been fueled in part by arbitrageurs like Boesky, who valued stocks in terms of their takeover value, not by the more conservative measures of earnings or book value. In an unusual step, the government decided that the Boesky news would be released after the market closed on Friday, November 14. That would give investors a weekend to digest the news before making any precipitous decisions. Chairman Shad, in particular, remained concerned about safeguarding the SEC's $100 million, which in part depended on the value of Boesky's huge portfolio.

The Enlightened Capitalists
by James O'Toole
Published 29 Dec 2018

“The real purpose of business is to serve acceptably and continuously all of the needs of all of the people all of the time,” Eagan summed up his managerial philosophy, concluding that profit was the result of doing those things.50 The record shows he had been right about the long-term financial benefits of ACIPCO’s employment practices: between 1922 and 1930, the company’s book value doubled, and when the Great Depression then struck a near fatal blow to many American businesses, ACIPCO was able to weather the storm, its practices and most of its workforce intact, until demand for its products soared again during World War II. ACIPCO’s Rediscovery The company continued to prosper after the war, but stayed largely out of the limelight until 2003, when its prime competitor, the Birmingham-based McWane Inc., found itself in the news after being cited for more than four hundred OSHA safety violations in the previous eight years—some four times more than its six major competitors combined.

A Beautiful Mind
by Sylvia Nasar
Published 11 Jun 1998

Nash was greatly preoccupied with trying to sell his Mercedes, still in the Institute for Advanced Study’s parking lot. The mathematician with whom he had left his car, Hassler Whitney, had called John Danskin and asked him to deal with it.90 John Abbat, a Frenchman who had invented a kind of bowling pin and was married to Odette’s older sister Muyu, got involved as well. The book value, Danskin recalled, was $2,300, but Nash was determined to get $2,400 or $2,500. “He was absolutely unreasonable,” Danskin recalled. “I didn’t sell it. It was still there when he got back.” From time to time, Nash asked Martha to send Eleanor money.91 He also asked Warren Ambrose to visit John David, or perhaps Ambrose offered.

Debunking Economics - Revised, Expanded and Integrated Edition: The Naked Emperor Dethroned?
by Steve Keen
Published 21 Sep 2011

(Fama and French 2004: 25; emphasis added) Their reasons for reaching this conclusion mirror many of the points covered in Chapter 15 on the alternative ‘Fractal Markets Hypothesis’ and ‘Inefficient Markets Hypothesis’ (which I wrote in 2000, four years before Fama and French’s paper was published): empirical research shows that the actual behavior of the market strongly contradicts the predictions of the EMH. Specifically: share market returns are not at all related to the so-called ‘betas’; much higher returns and lower volatility can be gained by selecting undervalued stocks (ones whose share market value is substantially below their book value); and far from there being a trade-off between risk and return, it is possible to select a portfolio that has both high return and low volatility, by avoiding the so-called ‘growth stocks’ that are popular with market participants. In considering why the data so strongly contradicted the theory, Fama admitted two points that I labored to make in this chapter: that the theory assumes that all agents have the same expectations about the future and that those expectations are correct.

Tools of Titans: The Tactics, Routines, and Habits of Billionaires, Icons, and World-Class Performers
by Timothy Ferriss
Published 6 Dec 2016

Every time I’ve tried to get “sophisticated,” the universe has kicked me in the nuts. Many startup investors use diametrically opposed approaches and do very well. There are later-stage investments I’ve made (2 to 4x return deals) that run counter to some of what’s below (e.g., aiming for more than 10x), but those typically involve a discount to book value, due to distressed sellers or some atypical event. Many concepts are simplified to avoid confusing a lay audience. The Road to No * * * So, Why Did I Decide to Tap Out and Shift Gears? Below are the key questions I asked to arrive at this cord-cutting conclusion. I revisit these questions often, usually every month.

The Half Has Never Been Told: Slavery and the Making of American Capitalism
by Edward E. Baptist
Published 24 Oct 2016

Nancy vanished and reappeared in her daughter’s household, demanding the division of the scores of slaves he owned, regardless of family ties. Jacob could game a public auction, colluding with his friends to keep bids low so he could buy back the undervalued slaves. Instead, she said, appraise the first-rate hands, the women, and the children; balance them all by their book value so that each spouse would get exactly the same; and split them up, for “they are susceptible to a division in kind without injury to us.” As the divorce wound on and panics erupted, she stuck to her guns, demanding her share and threatening to get her son-in-law to assault the nearly seventy-year-old Jacob.

Thinking Without a Banister: Essays in Understanding, 1953-1975
by Hannah Arendt
Published 6 Mar 2018

The Possessed “The Freedom to Be Free”: The Conditions and Meaning of Revolution Imagination He’s All Dwight Emerson-Thoreau Medal Address The Archimedean Point Heidegger at Eighty For Martin Heidegger War Crimes and the American Conscience Letter to the Editor of The New York Review of Books Values in Contemporary Society Hannah Arendt on Hannah Arendt Remarks Address to the Advisory Council on Philosophy at Princeton University Interview with Roger Errera Public Rights and Private Interests: A Response to Charles Frankel Preliminary Remarks About the Life of the Mind Transition Remembering Wystan H.

Haskell Programming: From First Principles
by Christopher Allen and Julie Moronuki
Published 1 Jan 2015

We will return to this concept several times throughout the book as it takes time to fully understand. Values are irreducible, but applications of functions to arguments are reducible. Reducing an expression means evaluating the terms until you’re left with an irreducible value. As in the lambda calculus, application is evaluation, another theme that we will return to throughout the book. Values are expressions, but cannot be reduced further. Values are a terminal point of reduction: 1 "Icarus" The following expressions can be reduced (evaluated, if you will) to a value: 1 + 1 2 * 3 + 1 Each can be evaluated in the REPL, which reduces the expressions and then prints what it reduced to. 2.12 Let and where We can use let and where to introduce names for expressions.

The Power Makers
by Maury Klein
Published 26 May 2008

Not until August 1898 did he finally gain approval to reduce outstanding GE stock from $34.7 million to $20.8 million. “This reduction of 30 per cent . . . ,” said one observer, “at last corrects the error made when it [GE] was originally formed.” The following year Coffin further adjusted the capital account by slicing the book value of GE’s patents in half, from $8 million to $4 million. By 1900 the company’s balance sheet would list assets of $27 million compared to $50 million in 1893. During those four dismal years sales remained static at around $12.6 million. The floundering Fort Wayne company was liquidated and replaced by a new company with a greatly reduced capitalization.

The Railways: Nation, Network and People
by Simon Bradley
Published 23 Sep 2015

Both properties were lavishly furnished, and it was reported that Mrs Redpath ‘had as many dresses as would fill a cart’. Much of the money left over went to good causes, including some showy benefactions; for instance, Redpath donated a rare edition of Milton to the Royal Society’s library. By 1854 the Great Northern’s management had spotted that the sum paid out in dividends was mysteriously at odds with the book value of its stock. The registrar was asked to look into the matter. Obfuscating as best he could, Redpath managed to keep his cover intact for two more years. When the story at last emerged it caused a sensation; as with the Hudson case, the public was left wondering how many other railway investments were not what they seemed.

The Wealth and Poverty of Nations: Why Some Are So Rich and Some So Poor
by David S. Landes
Published 14 Sep 1999

The best and biggest were the famous D-Banken (so-called because their names all began with the same letter): the Darmstädter Bank, Discontogesellschaft, Deutsche Bank, Dresdner Bank. Two of these (Darmstädter and Dresdner) started in provincial centers and moved to Berlin; one finds similar transfers in Britain and France. They signal the strength of local enterprise and capital. Between 1870 and 1913, book value of assets of these mixed banks rose from about 600 million to over 17.5 billion marks—from 6 to over 20 percent of the stock of industrial capital.8 Most of the shares were in heavy industry. Smaller enterprises found help elsewhere; the business of big banks was big business. But what if the country was too poor to finance the banks needed to finance industry?

Crashed: How a Decade of Financial Crises Changed the World
by Adam Tooze
Published 31 Jul 2018

But given the relatively small size of the portfolio and the AAA rating of the assets it had written CDS on, it had not thought it necessary to insulate itself against losses. It was a fatal mistake. Out of a total of 44,000 derivatives contracts on the books of AIGFP, there were, it turned out, a cluster of 125 CDS on mortgage-backed securities that were about to go bad in a spectacular way. Those 125 contracts would inflict book value losses on AIG of $11.5 billion, twice what the ill-fated AIGFP unit had earned between 1994 and 2006. This was a heavy blow, but given its enormous global business, AIG could absorb portfolio losses on this scale. In due course the market would bounce back. Nor was AIG facing demands to pay out on MBS that had actually defaulted.

Nature's Metropolis: Chicago and the Great West
by William Cronon
Published 2 Nov 2009

“I supposed considering the condition of affairs in the Country,” he fumed, “that all hands would be obliged to me for giving them imploy at such wages as I could afford to pay & be willing to take part of their wages in trade at that.”65 If the men could not see that their true interest was to have any job at all under such circumstances, so much the worse for them. Mears’s occasional inability to meet his payroll points to a deeper problem that he shared with other Great Lakes lumbermen in the era immediately surrounding the Civil War. Like many frontier entrepreneurs, most lumbermen were undercapitalized.66 Despite the high book value of a typical lumber company’s fixed capital—the lands, mills, and machinery that easily ran to hundreds of thousands of dollars for even a medium-sized firm—many companies often lacked the liquid capital needed to turn trees into lumber and lumber into cash. Even if a lumberman owned ten thousand acres of prime timber and a state-of-the-art sawmill, neither was any good without the money to hire workers or buy supplies.

The Invention of Science: A New History of the Scientific Revolution
by David Wootton
Published 7 Dec 2015

Double entry, like any mathematical technique, depends on abstraction. Bookkeeping turns everything into a notional cash value, even though you do not actually know if you will ever sell it or what you will get for it if you do. When two partners divide up the profits of a business between them they assign a notional book value to the stock in hand. There would seem to be no connection between bookkeeping and science. But Galileo, who had probably taught bookkeeping himself when he was scrabbling a living together in the years between 1585, when he ceased to be a university student, and 1589, when he obtained his first university appointment, thought there was.

The Quest: Energy, Security, and the Remaking of the Modern World
by Daniel Yergin
Published 14 May 2011

Even after the 1929 stock crash, his companies were still making investments, and taking on still more debt with some abandon. The enterprise became leveraged to an extraordinary degree. Moreover, Insull’s accounting practices were suspect. His companies, it was said, would overcharge each other for services. They would also sell assets among themselves, marking up the book values after the sales; they virtually ignored accounting for the depreciation of assets. The whole business was predicated on Insull’s ability to continue raising massive sums, even as investors had little understanding of the actual finances of the companies. But time was running out. As the Great Depression deepened and the stock market continued to decline, banks began to call in their loans from Insull.

The Rise and Fall of the Great Powers: Economic Change and Military Conflict From 1500 to 2000
by Paul Kennedy
Published 15 Jan 1989

Secondly, for all the absolute increases in American exports and imports, their place in its national economy was not large, simply because the country was so self-sufficient; in fact, “the proportion of manufactured goods exported in relation to their total production decreased from a little less than 10 percent in 1914 to a little under 8 percent in 1929,” and the book value of foreign direct investments as a share of GNP remained unaltered148—which helps to explain why, despite a widespread acceptance of world-market ideas in principle, American economic policy was much more responsive to domestic needs. Except in respect to certain raw materials, the world outside was not that important to American prosperity.

The Man Who Knew: The Life and Times of Alan Greenspan
by Sebastian Mallaby
Published 10 Oct 2016

Sells 2 Hotels in Lincoln S&L Case to Kuwaiti Investors,” Wall Street Journal, October 24, 1991. In 1993, when the Resolution Trust Corporation—the government entity created to clean up the thrift mess—moved Keating’s half-built housing community, Estrella, off its books, the highest bid came in at $28 million, compared to a book value of $295 million. See James S. Granelli, “Keating’s ‘Dream’ Is Devalued,” Los Angeles Times, June 2, 1993. It should be noted, though, that the RTC hoped to recoup some of its loss by maintaining an equity partnership with the property’s new developer. See Terry McDonnell, “RTC Rings Up Big Sale in Arizona,” Chicago Tribune, May 23, 1993; and Dean Foust, “Now They’re Really Down to the Dregs,” BusinessWeek, March 7, 1993. 56.

The First Tycoon
by T.J. Stiles
Published 14 Aug 2009

Rather, they were “interest on capital,” a due return on the amount originally invested in construction. Americans discussed the par value of a railroad share as if it were money deposited in a savings account, an account from which all interest must be drawn, and never allowed to compound. Even the market value of the railroad's physical assets—its “book value,” or what it would bring if its property were sold—did not enter into it; only the cost of construction mattered. And on this capital an interest of about 6 to 10 percent was politically acceptable—indeed, expected by investors and the broader public alike. In this light, any increase of stock was a fraud unless it directly reflected money expended on new construction, and any dividend paid on those fraudulent shares was theft, fake interest paid on “fictitious capital.”

God's Bankers: A History of Money and Power at the Vatican
by Gerald Posner
Published 3 Feb 2015

Sindona reminded them that when Italy had created the Olympic Highway in 1960, critics had charged that SGI had gouged the Roman government. The previous year, leftist newspapers accused the Vatican of manipulating local zoning regulations to help Hilton build a new hotel.141 And just a few months before the late night meeting, workers had occupied the church-owned flour mill, Pantanella, after the Vatican had slashed the mill’s book value to stay solvent.142 Those headaches were problems the church did not need, contended Sindona. They would only grow over time, especially as the press became increasingly alarmist and intrusive.143 Moreover, by maintaining majority positions in companies, the church was on the line for business failures, putting it at risk for having to use its own money to shore up firms that hit hard times due to bad management or an uncontrollable turn in the economy or marketplace.144 Finally, he assured them, he would reinvest the money from the stock sales into new and better investments abroad, ones that would free the church from worrying about taxation or social criticisms.

Reamde
by Neal Stephenson
Published 19 Sep 2011

“It’s a commercial building in Seattle … an industrial neighborhood called Georgetown…” Wallace nodded and quoted the address from memory. Peter’s face got hot. “Okay, you’ve been checking me out. That’s fine. I acquired the space before the economy crashed. I use part of it as live/work space and lease out the rest. When the economy went south, vacancy rates went nuts and the property lost a lot of book value as well as not bringing in rent. But with this, I can make it right. Avoid foreclosure, fix a few things, sell it, be in position to buy…” “A real house where a female might actually want to live?” Wallace asked. For Peter, in spite of willing himself not to, had let his eyes stray momentarily in the direction of Zula.

The Better Angels of Our Nature: Why Violence Has Declined
by Steven Pinker
Published 24 Sep 2012

But they may also recognize special circumstances that call for some other relational model. They may work together on a task in which one is an expert and gives orders to the other (Authority Ranking), split the cost of gas on a trip (Equality Matching), or transact the sale of a car at its blue book value (Market Pricing). Infractions of a relational model are moralized as straightforwardly wrong. Within the Communal Sharing model that usually governs a friendship, it is wrong for one person to stint on sharing. Within the special case of Equality Matching of gas on a trip, an infraction consists of failing to pay for one’s share.

J.K. Lasser's Your Income Tax
by J K Lasser Institute
Published 30 Oct 2012

Convention costs are deductible only in the case of a business activity (20.12). Trips to attend stockholder meetings. However, in a private letter ruling, one stockholder was allowed a deduction. He owned substantial stockholdings that had lost value because his corporation had been issuing stock to the public at prices below book value. He went to the annual shareholders’ meeting to present a resolution requesting management to stop the practice; the resolution passed. Under such circumstances, the IRS held that the trip was directly related to his stockholdings and allowed him the deduction. The IRS distinguished his case from a ruling that bars most stockholders from deducting the cost of travel to an annual meeting.

J.K. Lasser's Your Income Tax 2014
by J. K. Lasser
Published 5 Oct 2013

Convention costs are deductible only in the case of a business activity (20.12). Trips to attend stockholder meetings. However, in a private letter ruling, one stockholder was allowed a deduction. He owned substantial stockholdings that had lost value because his corporation had been issuing stock to the public at prices below book value. He went to the annual shareholders’ meeting to present a resolution requesting management to stop the practice; the resolution passed. Under such circumstances, the IRS held that the trip was directly related to his stockholdings and allowed him the deduction. The IRS distinguished his case from a ruling that bars most stockholders from deducting the cost of travel to an annual meeting.

J.K. Lasser's Your Income Tax 2016: For Preparing Your 2015 Tax Return
by J. K. Lasser Institute
Published 19 Oct 2015

Convention costs are deductible only in the case of a business activity (20.12). Trips to attend stockholder meetings. However, in a private letter ruling, one stockholder was allowed a deduction. He owned substantial stockholdings that had lost value because his corporation had been issuing stock to the public at prices below book value. He went to the annual shareholders’ meeting to present a resolution requesting management to stop the practice; the resolution passed. Under such circumstances, the IRS held that the trip was directly related to his stockholdings and allowed him the deduction. The IRS distinguished his case from a ruling that bars most stockholders from deducting the cost of travel to an annual meeting.