RE:RE:RE:Book ValueYou said:
“Theoretically, book value represents the total amount a company is worth if all its assets are sold and all the liabilities are paid back. This is the amount that the company’s creditors and investors can expect to receive if the company goes for liquidation”
That is incorrect most of the time. Book value = assets - liabilities. The assets on the balance sheet represent the price you bought the assets for, minus depreciation. The market value of those assets could be significantly different from the stated value on the balance sheet over time. In some cases, liquidation value could be close to book value depending on the accounting decisions made. I gave you an example of this with the Pearson property. In fact in the annual report they tell you in an accounting note the unrealized gains (earnings) on property that would be reflected if you liquidated the company, but are yet not reflected in the current balance sheet.
The CIBT annual report also provides the equity (book value) attributable to shareholders, which nets out the minority interest from the other joint venture investors. Currently that book value is $49.44M ( see page 3 of the annual report). But like I said, it doesn’t include the unrealized gains from several assets like the Pearson property (~$18M). You could adopt an accounting policy where you don’t claim earnings on property appreciation until you sell the property. Then the book value and the liquidation value would be very different. So it depends on the accounting rules you use.
To start a company you put an investment into it. This is the initial equity investment in the company. The only way to increase the book value is to make earnings that increases the total value of your assets or raise additional investment. If you pay a dividend, that lowers book value because you’re taking cash out of the company. Book value is just an accounting number. It’s a metric. It isn’t a real thing. Earnings are also just an accounting number. A metric. They aren’t a real thing. Sometimes earnings and free cash flow are the same, sometimes they are very different.
Like I said, book value just represents the initial investment in the company, plus cumulative earnings, minus dividends paid. That’s how accounting works. That’s why they call it a balance sheet because it must balance book value with investment plus cumulative earnings minus dividends. It’s just a historic metric and you have to understand how it is formed for each specific company to understand its usefulness.
Book value = assets - liabilities
Liquidation value = market value of the assets - liabilities.