To find the book value per share:

1.) Go to: http://money.ca.msn.com/investing/
2.) Enter the ticker symbol of your chosen company in the “Name or Symbol” field (note “.to” is not required because Canada is listed as the market already)
3.) Click on Highlights under the Financial Results header in the left tool bar
4.) Book value per share is listed third from the bottom in the table displayed

RY
Book Value: $25.63
Current Price: $57.79

TD
Book Value: $45.85
Current Price: $71.01

BNS
Book Value: $24.65
Current Price: $49.12

BMO
Book Value: $37.14
Current Price: $59.15

CM
Book Value: $38.12
Current Price: $73.93

Next, we'll do the final calculations on these numbers, and plug them into the developing table.

Book Value Per Share

Book value per share is a comparison between the actual value of a business versus the price that people are paying for it.

Book value per share = stockholder's equity/outstanding shares

The book value part of the “book value per share” is the dollar value of the business if they sold everything that they own.

The outstanding shares is the number of shares that the business has outstanding.

Now what do you do with this number?

You compare it to the current price per share of the company.

If the current price is less than the book value per share, then you're paying less for the company than the value the business would be worth if they sold everything. If the current price is more than the book value per share, then you're paying more for the company than the value of the business.

It's important to note that while this may be perceived as getting good value for your investment, there are companies that are worth far more than the price of what they own. Why? Well, it could be a number of reasons, they have a big brand name, they have technology or information that is more valuable than money. These types of assets are called intangible, and don't have a dollar value attached to them.

By comparing the book value per share between other companies in the same industry, a sense for the industry as a whole and the performance of an individual business can be evaluated.

Return on Equity

Return on Equity is a number I like to take a gander at before hitting the “buy” button. It provides some insight as to how well the company is using the investments that people like me (a shareholder) make.

Return on equity is the net income divided by shareholder's equity. Net income is the money that the company made over a period of time and shareholder's equity is the amount of money that shareholders (i.e. me) have invested in the company at that period of time.

A return on equity of greater than 10% is where I like to be investing. When it comes to return on equity bigger is always better. It means that the company is making more money on every dollar that investors have in the company.

To find the return on equity for a given compnay:

1.) Go to: http://money.ca.msn.com/investing/
2.) Enter the ticker symbol of your chosen company in the “Name or Symbol” field (note “.to” is not required because Canada is listed as the market already)
3.) Click on Highlights under the Financial Results header in the left tool bar
4.) Revenue per share is listed fourth from the top in the table displayed

Comparing P/E Ratios of Canada's Five Big Banks

To find the Price/Earnings (P/E) of a company, do the following:

1.) Go to: http://money.ca.msn.com/investing/

2.) Enter the ticker symbol of your chosen company in the “Name or Symbol” field (note “.to” is not required because Canada is listed as the market already)

3.) P/E is listed is the second entry in the table, in the right hand column under the chart

Repeat for each of the five companies selected, and add it to the table of info:

Company
Net Profit Margin (last 12 months)
Earnings Per Share
Revenue Per Share
Price/Earnings Ratio

Royal Bank of Canada (RY)
13.60%
2.56%
20.68
20.25

Toronto-Dominion Bank (TD)
16.39%
3.49%
19.88
20.09

Bank of Nova Scotia (BNS)
25.32%
3.32%
14.23
14.84

Bank of Montreal (BMO)
16.84%
3.29%
19.28
15.57

Canadian Imperial Bank of Commerce (CM)
12.04%
2.65%
25.97
18.6

A couple of observations about the P/E ratios:

BNS and BMO P/E ratios are relatively lower than RY and TD, indicating greater value in BNS and BMO.

To date - if net profit margin, earnings per share, and P/E ratio are weighted equally, the pecking order among the 5 big banks is as follows:

1.)BNS
2.)BMO
3.)TD
4.)CM
5.)RY

When comparing P/E ratios between industries, Research in Motion (RIM) P/E is 17.66 and Brookfield Properties Management (BPO) is 24.18

Research In Motion (RIM) is the designer and manufacturer of the award-winning BlackBerry® smartphone, used by millions of people around the world. The company also creates solutions for the worldwide mobile communications market, including the software that allows the BlackBerry smartphone to provide mobile access to email, applications, media and the Internet. http://www.rim.com/company/

BPO is “a commercial real estate corporation that owns, develops, and operates premier assets in the downtown cores of high-growth North American cities” http://www.brookfieldproperties.com/corporate/

The Impact of the Environment on the Financial Industry

Today the Bank of Canada announced that key lending rates will remain unchanged at 0.25%. This news is good stuff for the financial industry for a couple of reasons:

1.)Low lending rates increase their profit margins.

2.)Loans continue to be affordable for individuals and businesses. (More people getting loans means more business for the banks)

Each of Canada's five big banks announced gains today as a result.

RY +2.05%
TD +1.67%
BNS +2.16%
BMO +4.49%
CM +2.66%

Why did BMO post such a large gain?

Well, they announced quarterly earnings today, and their earnings announcement beat the estimates. The Street (an American news and financial services company) predicted that BMO would earn $1.03 per share in the first quarter. BMO actually earned $1.13 per share.

Exceeding analysts predictions for any company is like Canadians expecting to win an Olympic gold medal on home soil, and then winning 14!

Back to P/E ratios tomorrow. This sidebar is much like the hobby of investing itself. Sometimes events come up that demand immediate attention. The ability to be flexible, identify and address them, even if it slightly changes an initial planned course of action is a great skill.

Price to Earnings Ratio

The price to earnings (P/E) ratio – one of the most highly sought after ratios in the world of investment.

The P/E ratio is the stock price/earnings per share. If the stock price is $10.00, and the earnings per share is $2.50, then the P/E ratio is $10.00/$2.50 = 4.

Typically, companies in higher growth industries will have higher P/E ratios, and companies in lower growth industries will have lower P/E ratios.

Some investors argue that a lower P/E ratio indicates that the investor is getting more value for their investment dollars, and other investors suggest that higher P/E ratios indicate greater potential for gains on their investment dollars.

For these reasons, I compare P/E ratios between companies in the same industry (and all ratios for that matter, thus the approach of comparing all data between the five big Canadian banks).

For more information about P/E ratios, Motley Fool and Investopedia have more information:

http://www.fool.com/investing/value/2006/08/29/how-to-use-the-pe-ratio.aspx

http://www.investopedia.com/terms/p/price-earningsratio.asp

As an aside, it'll be interesting to observe the impact that today's news about Canada's 5% GDP growth in the fourth quarter of 2009 will have on the five big banks, if any. When I hear news like this, I ask (and find the answers to) questions like – what does economic growth mean for interest rates? What impact does that have on the profitability of banks? What will the next media headline be for the company that I am invested in or considering investing in? What will that mean for the stock price next week, next month?