In this video, look at how to estimate the value of a business using the equity, or book value, of a company.
- When using accounting-based price multiples…to estimate the value of business,…we measure the size of the business…using accounting numbers, such as net income,…equity or shareholder investment, and sales.…Let's practice using the equity or book value of a company.…The book value of the company's equity is equal…to the amount that the owners of the company have invested…in the company, either directly or through having profits…retained in the company to pay for expansion.…The price-to-book ratio reflects the difference…between the balance sheet value of a company…and the company's actual market value.…
So the price-to-book ratio equals the market value…of the company divided by its book value.…The market value of the company is the price…that you would have to pay…to buy all of the ownership shares of the company.…This is sometimes called…the company's market capitalization.…For example, on July 31st, 2017,…the market capitalization of Apple was $800 billion,…just in case you were thinking of saving up your money…
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- Calculate payroll expenses with accuracy.
- Apply the entity concept to hypothetical situations.
- Describe the process for obtaining financing from third-party sources.
- Explain the process for valuing a company.