Joys Of Compounding: The Passionate Pursuit of Lifelong Learning

by Gautam Baid

Par value. The par value of a stock is the book value of its equity. This is an accounting value that approximates the value of a business to its shareholders if it were to stop operations immediately—that is, it does not account for future growth. It is the difference between what a company owns (assets) and what that company owes to others (liabilities). Buffett has cautioned investors not to confuse book value with intrinsic value: “Of course, it’s per-share intrinsic value, not book value, that counts. Book value is an accounting term that measures the capital, including retained earnings, that has been put into a business. Intrinsic value is a present-value estimate of the cash that can be taken out of a business during its remaining life. At most companies, the two values are unrelated.”