what exactly does this mean ” book value”? And what is a reason for the stocks being sold for this lower price? Does everyone pay the same price for it, is book value the same as market value?
4 Responses to “How are stocks sold at below book value? Why a company or a brokerage offer stocks at below book value?”
on 28 Jul 2008 at 1:22 am 1.VTXrider said …
Book value is accounting value. Companies can trade below this if they are percieved to be having troubled time and are generally expected to loose money. Also they can be below this if the true value of assets or libilities are percieved to be different from the accounting value, for example the company could have 1000 computers in inventory at $1000 per computer so $1,000,000 in inventory but if the computers are obsolete they may only have a real value of $100 per computer so the true value is less that the accounting value. In the above expample the computers should be written down int he accounting value to $100 so this is not the best example but it is the best I came up with of the top of my head.
Or perhaps a home builder which bought land 2 years ago and still has that land on the books at the price paid, we all know most land has gone down in value so the book value does not reflect the true value.
For the second part of your question remember that except of the initial offering the company is not selling the stock and niether is the brokerage. Once the stock is listed on the exchange you are buying and selling with another investor and the brokerage is just that, a broker. Think like a real estate broker, you do not buy the house from them they just facilitate the deal between the buyer and the seller.
on 28 Jul 2008 at 3:16 am 2.David S said …
supply/demand
bad market condition
negative earring
downgrade or sell rate
bad rummer–or bankrupt news
losing market share
these are the top reasons why stocks price could drop alot to the point it will cheaper than the book value.
@@@ no the market value is not the same as book@@@
on 30 Jul 2008 at 8:26 pm 3.danny_boy_jones said …
Book value is the price that was originally paid for the stock. It is a value used to keep the books balanced. It it not market value.
If they sell the stock for less than book value, they will trade the book value for cash plus a loss in equity, keeping the books balanced.
Stocks also have face value, i.e. the original issue price. Market value is what the stock is worth in the market at any particular time.
If a company is generating a lot of income and is growing, it will have a greater market value, because demand will increase. If a company is having financial difficulties, it will drop in value.
The primary job of a CEO is to “maximize share price.”
on 02 Aug 2008 at 3:21 am 4.chillininvt said …
When people sell large amounts of shares it tends to drive the price of the stock down. If I needed to get rid of $250,000,000 worth of stock, I might drive the price of the stock way down in doing so.
First I would fill all of the orders at the highest bid, than I would fill all of the order of the next highest bid, and so on and so forth.
So if the price of the stock is $50 and I fill all of the sell orders, than the next highest sell order is $45 dollars I would fill all of those sell orders and so on and so forth. Sometimes people will run out of people to sell there shares to so the price will get lower to attract more buyers. By the time you got done selling your $250,000,000 in share you could are taking $250,000,000 out of the value of the company.
on 28 Jul 2008 at 1:22 am 1.VTXrider said …
Book value is accounting value. Companies can trade below this if they are percieved to be having troubled time and are generally expected to loose money. Also they can be below this if the true value of assets or libilities are percieved to be different from the accounting value, for example the company could have 1000 computers in inventory at $1000 per computer so $1,000,000 in inventory but if the computers are obsolete they may only have a real value of $100 per computer so the true value is less that the accounting value. In the above expample the computers should be written down int he accounting value to $100 so this is not the best example but it is the best I came up with of the top of my head.
Or perhaps a home builder which bought land 2 years ago and still has that land on the books at the price paid, we all know most land has gone down in value so the book value does not reflect the true value.
For the second part of your question remember that except of the initial offering the company is not selling the stock and niether is the brokerage. Once the stock is listed on the exchange you are buying and selling with another investor and the brokerage is just that, a broker. Think like a real estate broker, you do not buy the house from them they just facilitate the deal between the buyer and the seller.
on 28 Jul 2008 at 3:16 am 2.David S said …
supply/demand
bad market condition
negative earring
downgrade or sell rate
bad rummer–or bankrupt news
losing market share
these are the top reasons why stocks price could drop alot to the point it will cheaper than the book value.
@@@ no the market value is not the same as book@@@
on 30 Jul 2008 at 8:26 pm 3.danny_boy_jones said …
Book value is the price that was originally paid for the stock. It is a value used to keep the books balanced. It it not market value.
If they sell the stock for less than book value, they will trade the book value for cash plus a loss in equity, keeping the books balanced.
Stocks also have face value, i.e. the original issue price. Market value is what the stock is worth in the market at any particular time.
If a company is generating a lot of income and is growing, it will have a greater market value, because demand will increase. If a company is having financial difficulties, it will drop in value.
The primary job of a CEO is to “maximize share price.”
on 02 Aug 2008 at 3:21 am 4.chillininvt said …
When people sell large amounts of shares it tends to drive the price of the stock down. If I needed to get rid of $250,000,000 worth of stock, I might drive the price of the stock way down in doing so.
First I would fill all of the orders at the highest bid, than I would fill all of the order of the next highest bid, and so on and so forth.
So if the price of the stock is $50 and I fill all of the sell orders, than the next highest sell order is $45 dollars I would fill all of those sell orders and so on and so forth. Sometimes people will run out of people to sell there shares to so the price will get lower to attract more buyers. By the time you got done selling your $250,000,000 in share you could are taking $250,000,000 out of the value of the company.