How to value a company if it has a negative book value of Equity?
February 28, 2009 by Debt Equity Financing
Filed under More Equity Answers
Can you answer a3853’s question about Equity?:
When I calculated the return of equity of a company, I found its book value of equity is negative because of the large treasury stock. If the book value of company’s eqity is negative, many valuation method can not be used. So I want to find some method to value the company that with negative book value of equity.
Private Equity Venture Capital
When I calculated the return of equity of a company, I found its book value of equity is negative because of the large treasury stock. If the book value of company’s eqity is negative, many valuation method can not be used. So I want to find some method to value the company that with negative book value of equity.
Private Equity Venture Capital
That’s a good question - I’m not sure how you’d do it. I’m not sure I’d want to go anywhere near a company with negative equity, though. They must have lost a LOT of money after their share buyback. And if their creditors start calling in loans, which is more & more likely in this environment, they’d be forced to declare bankruptcy.
The company is probably not worth your effort of the attempt. One such company that come to mind is Health South, an absolute investment disaster.
For many companies, the book value of equity is an accounting fiction that has little to do with the real value.
There are lots of valid methods that can be used to value a company. If it has a large store of treasury stock, then it is probably a stable mature company. The Discounted Cash Flow method is probably the best way to find the value of these kinds of firms.
I think the best book to see value of company is the intelligent investor ..
It’s called the bible of investor ..
it see company from many perspective like management , owner , PER , ROE , cash flow etc
You can see it in amazon : &