Why so many different explanations between Equity, Book value and NAV? ?
Hello, my understanding of book value/equity has always been that it was the same as to the Net Asset Value.
Basic business books will always give the basic formulas Assets=Liabilities+Equity
Whay isn’t equity always the same as NAV?
I am greatly confused now by looking at some statements using more elaborate entries in the balance sheets such as capital paid in, stock equity etc…
These seem meaningless to me as they never will be given back to the stockholders anyways.
Why do these meaningless figure have anything to do with book value?
I mean if the company liquidates, only the NAV will dictate the available capital available from assets that can be brought back to shareholder….
Thanks!!
well, NAV is mainly used for funds, where the value of the fund is re-calculated daily.
book value is a synonym for equity, basically. book value is typically cited in per share terms, though, while stockholder equity is used to refer to the company as a whole.
assets = liabilities +stockholder equity is the basic accounting formula.
common stock is a line item in the stockholder equity portion of the balance sheet. it’s just the number of shares times the par value per share. par value, to the investor, is completely irrelevant. it’s often dictated by state law.
paid-in capital (or APIC) is the amount of money the company received from the sale of common equity, less the par value of that equity.
balance sheet accounts are mostly meaningless, but the different accounts help the investor calculate ratios and metrics helpful in analyzing the health and value of the company. things like the quick ratio or tangible book value back out some of these accounts.
if the company liquidates, then book value, in generally, is meaningless. the bondholders will get to divide the assets as they see fit, often disposing of assets in fire-sales, so they can just cash out and leave stockholders holding an empty sac.
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