Brian asked in Business & FinanceInvesting · 8 years ago

Book Value, EPS question?

Let's say firm X is currently an investent holding company comprising of listed and unlisted equity stakes. For clarity's sake, please ignore these for now.

X currently has a P/NAV 12.1X of and a D/E of 0.022X. The numbers are weird presumably because of the nature of the business? Just a shell company holding 6 stocks.

Very recently, X acquired an architecture firm in Malaysia as well as a large piece of land next to it with the express intent of developing that land into an integrated township (malls, apartments, medical centre, etc).

On the assumption that the Malaysian developments are on a scale far bigger than the equity holdings, and that the township and architecture firms are roaring successes,

(i) How will EPS growth likely appear relative to Book value if the main deal is the Architect firm and property development?

(ii) If the land is developed, and they decide to sell it, will the properties be counted towards the firm's book value until sold?


1 Answer

  • 8 years ago
    Favorite Answer

    Something is wrong here. If a holding company sells for 12 times its NAV then someone is manipulating this stock, regardless of what the underlying assets are. The NAV is what the company could sell all its assets for, so no reasonable investor pays 11 times more.

    (i) The EPS would not change at all until some of that developed land is sold.

    (ii) No. The book value refers to the carrying value of an asset, liability or the entire business and is mainly an accounting value for tax purposes. It is based on historical costs, meaning that its calculation is based on the cost at acquisition and therefore does not represent market value. To calculate the book value of an asset you subtract the accumulated depreciation from the cost of the asset.

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