Why book value has lost its meaning

BABY-BOOMERS may recall, perhaps wistfully, how the golden-arched sign outside every McDonalds restaurant would proclaim how many customers had been served by the chain. As they became adults, the number kept on climbing: 5bn in 1969; 30bn in 1979; 80bn in 1990. Jerry Seinfeld, a wry chronicler of the trivial, was moved to ask: Why is McDonalds still counting? Do we really need to know about every last burger? Just put up a sign that says, Were doing very well.The counting stopped. The signs said simply: Billions and billions served. If this seems unhelpfully vague, that is how the counting business sometimes is. Many of Americas biggest companies, including McDonalds, report a negative book value, a gauge of a firms net assets. Many more have a book value that is small relative to their market value: their shares look dear on a price-to-book basis. Much of this is down to the complexity of valuing a firms assets in the digital age. But the result is that price-to-book is a bad guide to a stocks true value.
See also:
Leave a comment
  • Latest
  • Read
  • Commented
Calendar Content
«     2020    »