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I OWN THAT COMPANY!

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ticular stock will help you decide if the present is a good time to buy or not. If you find that the present P/E ratio is pretty low when com- pared to the historical figures, the stock may be a good purchase.

Net Asset Value per Share Net asset value per share, or book value per share, is the amount of assets a company has working for each share of common stock. It’s calculated by taking the net balance sheet values of corporate assets and subtracting the face value of any creditors’ and preferred share- holders’ claims. This number is then divided by the number of out- standing shares. So, for XYZ Corporation, the company’s assets totaled $59 million and their debts and preferred stock claims were $21 million. The remaining $38 million is divided by the number of outstanding shares, 1.2 million. Thus, their book value per share is $31.67.

$38 m $59 m $21 m =  = $31.67 1.2 m shares

Generally, the book value for a stock is not a widely used indica- tor of the stock’s value. It also isn’t as important as the company’s ability to generate an earnings stream. For growth stocks, the market value could be many times the book value. Conversely, for compa- nies that are in either static or declining industries, book value may be much greater than market value.

Yields For common stocks, yields can be measured as “nominal yields” or “current yields.” These measure the rates of return for a stock. When considering whether to buy, keep, or sell a stock, it’s important to cal- culate the yields, so you can make an informed decision.

Nominal yields are calculated by taking the annual interest or dividends paid and dividing it by the stock’s par value. This is often called the “dividend rate” when applied to preferred stock. Nominal yields really have no meaning for common stocks.

Current yields, though, are a more meaningful measurement for investors. This is found by dividing the annual investment income by the security’s current price. Current yields can be applied to common

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