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OklaBoston (60.55)

Book Value and Current Ratio



April 16, 2013 – Comments (2)

I'm guessing that most Fools would be willing to pay a higher multiple of book for a stock with a high current ratio than for a more average one.

 Just how much difference should that make, all else being as nearly equal as possible? 

2 Comments – Post Your Own

#1) On April 19, 2013 at 5:17 PM, Valyooo (34.27) wrote:

I'm not much of a cash flow balance sheet "Tradional investor", so take my word with a grain of salt.

That being said, I don't put any emphasis on book value, unless the stock is trading at an insane discount to book value.  When you buy a company, you are buying their future stream of cash want to get big dividends and even bigger dividends as time goes on.  For instance, if a company was paying me a billion dollars a year in dividends, with a 15% growth rate per year in dividends, but their book value was only 10 dollars, I would gladly pay 10 billion dollars a year for that dividend stream....big exaggeration of course, but just trying to prove my point, that IMO book value means nothing unless the company will be divested.

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#2) On April 20, 2013 at 7:17 PM, OklaBoston (60.55) wrote:

I'm more value oriented than I used to be, and my score here has started climbing since I reduced the emphasis I used to place on charting.

 The thing about current ratio is that a high one indicates the company will have little need to borrow money to fund future operations. Which improves the chances of book value going up. Which in turn means the company is unlikely to need to reduce it's dividend and is more likely to be able to raise it. So paying attention to both B/V and current ratio is beneficial to income oriented investors and capital gains ones alike. 

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