Great question! The reason is that a hypothetical investor (someone interesting in buying common shares) would want to know the amount that they and the other common shareholders would receive if the company (1) sold all its tangible assets for their book values and (2) used the proceeds to pay off its debt, give preferred shareholders their money back, and distribute the remaining amount to the common shareholders. This comes back to the pecking order when a company is liquidated: creditors must be paid first, then preferred shareholders, and finally common shareholders. Thus, a hypothetical investor would want to exclude preferred equity when thinking of book value because common shareholders aren't going to receive that amount if the company is liquidated (that portion would go to preferred shareholders). I hope this helps!
Let me explain something for every investor from developed countries. Maybe you all don't know this, but most of the companies in developing countries have its market value per share bellow its book value per share, and the reason is just prejudice against developing countries, there are many good and profitable companies in developing countries, one exemple is Brazil, we are peaceful, we are far away from the U.S and from Russia and from China, and from any trouble-maker countries, we have a big forest that are the lungs of the world so no one would nuke us because of that, we don't have too many natural disaster in comparison even to the U.S. And for a reason that I don't know our companies are undervalued.
Great video. It is the explanation I was looking for. It is a genuine explanation too I can tell. Thumbs up.
Awesome job explaining!
This guy is a genius!
😀
Why do you use common stockholders equity instead of shareholders equity? Keep up the great work!
Great question! The reason is that a hypothetical investor (someone interesting in buying common shares) would want to know the amount that they and the other common shareholders would receive if the company (1) sold all its tangible assets for their book values and (2) used the proceeds to pay off its debt, give preferred shareholders their money back, and distribute the remaining amount to the common shareholders. This comes back to the pecking order when a company is liquidated: creditors must be paid first, then preferred shareholders, and finally common shareholders. Thus, a hypothetical investor would want to exclude preferred equity when thinking of book value because common shareholders aren't going to receive that amount if the company is liquidated (that portion would go to preferred shareholders).
I hope this helps!
Great job!
Thank you!
Good ratio for value investing :)
whats the differance between Price to book ratio and Book value per share ?
Perfect
Let me explain something for every investor from developed countries. Maybe you all don't know this, but most of the companies in developing countries have its market value per share bellow its book value per share, and the reason is just prejudice against developing countries, there are many good and profitable companies in developing countries, one exemple is Brazil, we are peaceful, we are far away from the U.S and from Russia and from China, and from any trouble-maker countries, we have a big forest that are the lungs of the world so no one would nuke us because of that, we don't have too many natural disaster in comparison even to the U.S. And for a reason that I don't know our companies are undervalued.
ty :)