Adjust book value is Book value after restating all assets to their fair market value on a balance

Adjust book value is Book value after restating all assets to their fair market value on a balance

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Adjust book value is Book value after restating all assets to their fair market value on a balance sheet. This adjustment often has a positive impact on net worth.Adjusted book value is the current market value of the assets. The book value of an asset on balance sheet is the cost of the assets minus any accumulated depreciation. Book value = Total asset - (Current liabilities + Long term liabilities + Preferred stock) Normally book value o a firm is lower than the market value of the firm.Higher market value indicates that company is favorite among investors. Sometimes book value is useful to find underpriced stocks. Any company traded at lower than book value per share (i.e. book value/no. of shares) is considered as underpriced. Market value of a firm is the current market price of stocks. It can be calculated as CMP* No. of shares. Strength of adjusted book value approach: 1) Simplicity of teh approach. (easy to apply) 2) Gives current market price of assets. Weakness of adjusted book value approach:
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Unformatted text preview: Firm's asset value is not actual value of a firm. Requires careful attention to off balance sheet items that impact the firm's fair value (eg. operating leases). It does not reflect future growth p;otential of the firm. Strength of market value approach: Price of a stock tells investors are seeing what value in the firm.It takes care of teh future growth p;otential of the firm. Weakness of market value approach: A firm may be overpriced or underpriced depending on market condition. Which method is better? Book value is a conservative approach on asset valuation.Market value is a more realistic and business approach. This is an updated valuation and reflect its current value. Market value is a better measure as market price of any firm is considered as right price as it is the price of the stock investors perceive. Though for investors who are hunting for undervalued stocks (they are also called value investors), book value of a firm is more important....
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This note was uploaded on 08/31/2010 for the course MSO PSY taught by Professor Hood during the Three '10 term at University of Adelaide.

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