Valuation : Question 4
When valuing a company, how much importance should be given to the company’s book value?

A company is worth its book value if its expected ROCE is equal to its weighted average cost of capital (WACC), or put differently, if it is not creating value. If its expected ROCE is lower than the weighted average cost of capital, the company is worth less than its book value. In this case, it is interesting to study book value, especially with a view to a sum-of-the-the parts valuation.

For more details, see chapter 32 of the Vernimmen and also the site glossary.