Free CFA Certification Practice Questions:


Two analysts are debating how to adjust the balance sheet to make P/B more accurately reflect the value of shareholders' investments.

Matthew Smith says: "Computing tangible book value per share involves subtracting reported tangible assets, such as goodwill, from common shareholders' equity"

David Rogers says: "For book value per share to most accurately reflect current values, the balance sheet should be adjusted for differences in the fair value of assets / liabilities from recorded accounting amounts. Assets such as marketable securities, which are reported at historical values, should be reported at fair value."

Which analysts is correct?

A) Both Matthew and David are wrong

B) Both Matthew and David are correct

C) Only one of the analysts is correct

  • [Ans: A]


    • Computing tangible book value per share involves subtracting reported intangible (not tangible) assets, such as goodwill, from common shareholders' equity.


    For book value per share to most accurately reflect current values, the balance sheet should be adjusted for differences in the fair value of assets / liabilities from recorded accounting amounts. Assets such as marketable securities are already reported at fair market value, and would NOT need to be adjusted.






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