Shareholder Equity

Shareholder Equity

Shareholder Equity 150 150 JP

Shareholder equity is the difference between total assets and total liabilities. On a per share basis its known as book value. Companies that translate retained earnings to equity growth become more valuable. It is worth noting that legendary investor Warren Buffett has used book value to benchmark the value of his conglomerate Berkshire Hathaway for over 40 years.

Book value is a historic number, providing no information about the future prospects of a business, apart from demonstrating consistency. However, if every dollar in retained earnings can generate at least the same in market value, then the company has added value to shareholders. That’s why return on equity is such an important ratio to top value investors.

Even though Apple and Amazon are valued differently by the market, investors cannot overlook the ability of both companies to grow book value. No matter what strategy you follow, being able to find stocks attached to companies that can do this will virtually guarantee you make money in the market.

Apple (AAPL)

book value
2009: $5.02
2012: $16.99
2015: $22.53
2018: $25.81

stock price
2009: $13.74
2012: $59.79
2015: $111.44
2018: $169.23

Amazon (AMZN)

book value
2009: $6.23
2012: $18.04
2015: $26.39
2018: 64.84

stock price
2009: $55.74
2012: $175.17
2015: $314.75
2018: $1,169.47

Analyzing both book value and earnings per share, investors can estimate the future value of almost any stock. Companies that have built brand power and strong competitive advantages tend to last longer.