A simple model to measure the relationship between book value & market value, using econometrics.

1. The relationship between
Book Value & Market Value
(Using Econometrics)
Dong Quang Vinh
Le Thi Hai Yen
Vo Thi Ngoc Ha
Nguyen Cong Tin
VNU IU - MBA5 - 22 May 2012

2. What’s for today?
Market Value & Book Value: A quick look
How to build MV & BV Model?
Trend Analysis: Industry vs. Market
Application

3. Lesson 1
Market Value & Book Value: A quick look
Market Value
Market Value = Current share price * Outstanding shares
Book Value

4. Why do most shares trade above Book Value?
 To make a high return on investment = want some premium
 The accounting figure is conservative
 Other parties to concern: financial institutions,
mutual funds, foreign institutional investors,
securities operators
 Their expectations include: future earnings, industrial gowth,
competitive advantages, etc.

5. Can Book Value >> Market Value?
Unprofitable companies:
invested heavily in assets without generating a profit
 the company may not be worth much
Share price may be low  the stock may be
attractive to buy.

6. The relationship between
Book Value & Market Value
 Book value = minimum that one might receive
 An indicator of whether the stock is over or under valued
in the market  determine good time to buy and sell stock.
 An increase in BV  affect positively in stock price
Other indicators
• Earnings per Share – EPS
• Price to Earnings Ratio – P/E
• Price to Sales – P/S
• Dividend Payout Ratio
• Dividend Yield
• Return on Equity
• Etc.

7. Lesson 2
How to build MV & BV Model?
Assumption
 The whole market includes 12 companies & divided into 4
industries: Banking, Security, Food Products, & Real estate.
 Stock price fluctuation merely depends on Book Value & Market
Value.
 Due to the limited scale of stock & period (< 30 items for
statistics), model tests (T-test, Prob-test, Durbin Watson test, R-
squared ratio) are not carried out.
 Other conditions do not change.

8. Collect & Process Data
ACB
STB
VCB
BBC HAG
Quantity
KDC 12 companies on HOSE VIC
MSN
REE
SSI
BVC
HCM

9. Collect & Process Data
Period: 12 periods (quarterly 2009, 2010, 2011)
Objects:
Total Assets
Total Liabilities
Total Equity
Total Shares (outstanding)
Daily Market Value (1095)

10. Method: Econometrics
 Using Econometrics Software (Eviews5) to make equation of each
industry and the whole market from data of 12 companies through
12 periods.
 From the equation table, defining a & b to build up the price
function:
Y = aX + b
Or MV = aBV + b
 From the function, drawing the price trend.

11. Industry Trend
Banking
MV = 5.57BV - 45,501

12. Industry Trend
Security
MV = 3.51BV -32,322

13. Industry Trend
Food
MV = 0.6BV + 25,870

14. Industry Trend
Real estate
MV = 1.86BV + 16,821

15. Whole Market Trend
MV = 0.72BV + 27,359
MV vs. BV
60000
56000
52000
48000
MV
44000
40000
36000
32000
28000
19000 20000 21000 22000 23000 24000
BV

16. Lesson 3:
ATrend Analysis: Industry vs. Market
Case study 1: Vincom
140.000
120.000
100.000
80.000
60.000
40.000
20.000
-
1 2 3 4 5 6 7 8 9 10 11 12
BV MV

17. Case study 2: Sacombank
MV vs. BV
60000
56000
52000
48000
MV
44000
40000
36000
32000
28000
19000 20000 21000 22000 23000 24000
BV
40.000
35.000
30.000
25.000
20.000
15.000
10.000
5.000
-
1 2 3 4 5 6 7 8 9 10 11 12
STB Book Value
STB Market Value

18. Case study 3: SSI
MV vs. BV
60000
56000
52000
48000
MV
44000
40000
36000
32000
28000
19000 20000 21000 22000 23000 24000
BV
90.000
80.000
70.000
60.000
50.000
40.000
30.000
20.000
10.000
-
1 2 3 4 5 6 7 8 9 10 11 12
SSI BV
MV

19. What we learn from real cases
that is different from theory?
Market Behavior
Trend is your friend
Buy the rumors, sell the news

20. Lesson 4:
How to apply this model?
What can I do if I know Book Value?
Based on the historical data, the stock
price function of a specific company is
built up.
Function MV = aBV + b can help to
indicate Market Value if the Book Value is
given
It’s expected Market Value.

21. Example: VNU IU stock comes to HOSE
VNU International University will publish their stock on the HOSE
in the next year.
How to estimate the market price of IU stock?
IU Book Value per share = 21,000 VND
MV vs. BV Answer:
60000
Currently, there’s no specific
56000
trend for education industry
52000
Based on the Whole Market
48000
Value Model to estimate MV
MV
44000
40000 MV = 0.72BV + 27,359
36000 BV = 21,000 VND
32000
28000  Expected Market Value MV
= 42,515 VND
19000 20000 21000 22000 23000 24000
BV

22. The end!
We are:
Dong Quang Vinh
Le Thi Hai Yen
Vo Thi Ngoc Ha
Nguyen Cong Tin
VNU IU - MBA5 - 22 May 2012