Definition:

The 5-year Book Value per Share Growth Rate measures the annualized percentage increase in a company's book value per share over a five-year period. It reflects how effectively a company is increasing its net asset value on a per-share basis over time.

Formula:

((Book Value per Share at End of Year 5 / Book Value per Share at Start of Year 1) ^ (1/5)) - 1

How to use the metric:

Investors use this metric to assess a company's ability to grow its intrinsic value over time. A consistent increase in book value per share suggests that a company is effectively managing its assets and liabilities, potentially leading to higher shareholder value.

Limitations:

The metric does not account for market conditions or external factors that may affect a company's book value. It also ignores the quality of earnings and may not reflect the true economic value if the company's assets are significantly undervalued or overvalued on the balance sheet.

Applies to:

This metric works best in industries with significant tangible assets, such as manufacturing, utilities, and real estate, where book value is a meaningful measure of a company's worth.

Doesn't apply to:

It is less applicable to industries with high intangible assets, such as technology or service sectors, where book value may not accurately reflect the company's true value due to the importance of intellectual property and brand value.

Summary:

The 5-year Book Value per Share Growth Rate is a useful metric for evaluating a company's ability to grow its net asset value over time. While it provides insights into financial health and management effectiveness, it should be used in conjunction with other metrics to get a comprehensive view of a company's performance, especially in industries where intangible assets play a significant role.