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Book Value Per Share: Case Study

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Book Value per Share

The book value per share is one ratio that investors can use to determine whether a share is undervalued. However this metric should not be used by itself as it only presents a very limited view of the company’s situation. The book value is a representation of the company’s current situation but the future of the company is not considered. (Investopedia, 2009) For example, a company’s share price might be lower than the book value per share leading one to believe that the share is undervalued but in reality opportunities to grow the company is very limited. The book value is essentially an accounting value.

Since 2009 the book value of Sappi declined, the lowest point being in the 2013 financial year. The market value …show more content…

Debt / Equity

The debt to equity ratio is a measure of the relationship between the shareholders equity and debt used to finance the company’s assets. The lower this figure the more independent a company is from debt when it comes to financing the company. The industry in which the company operates also affects the way the ratio is interpreted.

In the case of Sappi the debt to equity ratio increased from 1.23 in 2009 to 1.27 in 2013. This change show their debt increased to finance the company. Given the fact that Sappi is in the forestry industry which demand huge amounts of capital and that the change in debt to equity is not very significant this will not be a major turn down for investors.

Dividend / Share

Dividend per share is the amount of dividends paid out over the year per share. Some company’s don’t pay out dividends and rather retain their earnings for growth. Investors that prefer a company who pays out dividends rather than retaining earnings would use this ratio to determine in which company they want to …show more content…

Earnings / Share

Earnings per share are used to measure a company’s profitability. The earnings per share is the portion of a company’s profit allocated to each outstanding share of common stock. (Investinganswers.com, 2014)

The earnings per share for Sappi have been very inconsistent over the last 5 years. This does not sit well with investors as it increases the risk of losing their investment. Investors want a consistent growth rate in order to keep their money growing over the course of time.

Earnings / Yield

Earnings / yield give an indication of the yields realized on the market value of a share. The earnings / yield can be used to compare the earnings of a stock, sector or the whole market against bond yields.

Sappi had inconsistent earnings / yield over the last 5 years with good yields in 2012 and 2010. However the earnings / yield which would interest investors most would be the most recent in 2013 when the earnings yield was negative 2.21. This shows the company was suffering losses during the 2013 financial year and is not a good sign for future

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