site Value of a Share

If you start with the balance sheet, you can obtain the so called site value of the share. It is obtained based on the site value of the company (that is, the own resources or non collectible liabilities, or net assets) according to its last balance sheet:

 site value of the company  =  share capital + reserves

The site value of a share is calculated by dividing the site value of the company by the number of shares that are part of the share capital. For example, if a company has some own resources of 230,000 m.u. (in which the share capital and reserves are included) and the share capital is constituted by 10,000 shares, the site value of one share would be:

site value of 1 share  :=  site value of the company  =  230,000  =  23 m.u.

        number of shares         10,000

Often, the site value of a share is usually calculated by deducting from the numerator the so called fictitious assets. By fictitious assets it is understood that they are those assets that do not have a market value and due to it are not susceptible to be sold.

The typical example of fictitious assets are the redeemable expenses (constitution expenses, expenses for the first establishment, etc.) due that they are not susceptible of being sold or of being converted into money:

site value of 1 share  =  site value of the company  -  fictitious assets

   Number of shares

The problem of the site value is that in the balance sheet it not always shows the real values of the assets. This happens because in the assets most of its components are valued in function of its acquisition value or that of the market, in case they are lower. Also, most of the companies have very important intangible assets that are not taken in mind by financial accounting. We are referring to the assets that form part of what is called intellectual capital of the company in which the value of trading marks, patents, the know how of their employees, customers, etc. are included. These values only appear on the balance sheet when they are object of a buy-out, circumstance that is produced when, for example, a company buys another company. In these cases, the acquired intellectual capital receives the denomination of goodwill fund.

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