Imo, you'll just spin yourself if you focus on "intrinsic" value. This term never comes up that I see in "Intelligent Investor, A Book of Practical Counsel". You don't need to obsess over "intrinsic" because it's not a number that's necessary to figure out so as to use as a bogey to tell whether a stock is overvalued or undervalued.
A company is a thing that does something or has something that is of value. That thing, the company, has value of itself -- i.e. intrinsic. A 2006 Ferrari P4/5 Pininfarina also is a thing that has intrinsic value. In my view it's as difficult to come to consensus on what intrinsic value is for a business as for the car or anything else.
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On the balance sheet, subtract total liabilities from total assets. That gets you to your equity. If you further subtract from this equity the category that's listed in total assets that is called "intangible assets", then what you get is something called "tangible equity". If you divide equity by number of shares outstanding (as is done in most screening programs) you get "book value per share", or what I refer to here as stated bv/sh. If you divide "tangible equity" by number of shares outstanding, you get what's called tangible book value per share.
This is in general. And sometimes that is good enough. Sometimes not. For example, sometimes not all liabilities are stated on the balance sheet (e.g. contingent liabilities). Sometimes, it's good to check that the divisor in bv/sh is based on "fully-diluted" shares, not just on shares outstanding or average shares outstanding during the particular year
When companies earn an after-tax profit, and that profit is not all distributed to shareholders, then usually, that retained profit drops into the category of retained earnings (an asset sub category) which usually means that book value per share increases. Which is what Mr. Buffett asks his stockholders to look at in evaluating his performance/the performance of Berkshire --- that is, how much is stated book value of Berkshire increasing year after year.
Sometimes this works for looking at other companies too. Sometimes not. Sometimes sales are not sales in the sense that a deal is done, something is given and money is received. So not all sales result in earnings that drop promptly into retained earnings.
Different businesses have their terminology differences. As do analysts. Sometimes on a value thread, net assets means net current assets (= current assets - current liabilities). I notice in looking at oil stocks, net assets -- net asset value (NAV) is some weighting of proven/probable/possible oil and gas holdings adjusted with a discount factor. This is different from the assets the company has on its balance sheet.
I'm getting tired. Someone else here will reply. Or try another thread like "Fundamental Value Investing". |
