Book Value and Price to Book Ratio

Book value is based on historical costs, not current values, but can provide an important measure of the relative value of a company over time.

Book value can be figured as assets minus liabilities, or assets minus liabilities and intangible items such as goodwill; either way, the figure that results is the company's net book value.  

You can also compare a company's market price to its book value(P/B) on a per-share basis. Divide book value by the number of shares outstanding to get book value per share and compare the result to the current stock price to help determine if the company's stock is fairly valued. Most stocks trade above book value because investors believe that the company will grow and the value of its shares will, too. When book value per share is higher than the current share price, a company's stock may be undervalued and a bargain to investors. In fact, the company itself may be a bargain, and hence a takeover target.

Current Ratio

Current assets divided by current liabilities yields the current ratio, a measure of a company's liquidity, or its ability to meet current debts.

The higher the ratio, the greater the liquidity.

As a rule of thumb, a healthy company's current ratio is 2 to 1 or greater.

Debt to Equity Ratio

Debt-to-equity ratio provides a measure of a company's debt level. It is calculated by dividing total liabilities by shareholders' equity.

A ratio of 1 to 2 or lower indicates that a company has relatively little debt. Ratios vary, however, depending on a company's size and its industry, so compare a company's financial ratios with those of its industry peers before drawing conclusions.