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Strategies & Market Trends : Action & Options- Taxikid plays
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To: Galirayo who wrote (3185)1/4/1998 7:58:00 PM
From: Druss  Read Replies (1) of 4339
 
Ray--If you don't mind my throwing in my two cents on Book Value.
I find it very difficult to accurately access Book Value. The companies may have indeed invested huge amounts in machinery but if the company were to fold the only value of that could be scrap. Five million in machinery on the Book Value may be fifty thousand in actual return if the company were to fold. This may be true also of office, warehouse and land values in the event of bankruptcy. They may be substancially less.
On the other hand companies may have land holdings that might even sell for more than anticipated. I pay particular attention to cash and debt when looking at a company. A company with cash and no debt normally has far more flexibility and chances for profit and expansion than one with simply a high book value.
The companies you are looking at sound interesting though. I would not discount what you are doing. It certainly gives you starting point to work from. You can't totally ignore book value. I just wouldn't count on that protecting you in a shakey investment. Particularly if a company persists in running quarter after quarter of debt. Debt run ups can devour the book value even if real.
All the Best
Druss
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