Book Value
As we might know, acquisition valuation will require the use of multiple analyses such as the Book value.
Determining the Book Value per share of American Airlines will help Delta Air Lines to have a clear estimate of a range of possible prices to pay.
Book Value Formula
Book Value= (Total Equity- Prefered Stock)/ shares outstanding
Based on the most recent quarter Q3 2017 Earnings Release of American Airlines financial information, we can estimate the overall total equity of the company in millions as 3,948. Furthermore, the number of outstanding shares in million is currently equal to 480.
Therefore,
Book Value= (Total Equity- Prefered Stock)/ shares outstanding
Book Value= (3,948-0)/480
Book Value per share=8.23
All numbers are in million except the Book Value/share.
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Also, during the last 13 years, American airlines has a 56.70% per year as its highest 3 year average Book Value Per Share Growth Rate. The median was 3% per year while the lowest was -81.7%.
Theoretically, Delta Airlines will be getting 8.23 for every share if it acquire American Airlines.
However, in my opinion, Delta has to be very careful about the real value of American Airlines acquisition because the Book Value might be a misleading value given that the true economic value of American Airlines assets might be undervalued. The reason for this undervaluation is related to the fact that the assets may be carried on the balance sheet at the original cost minus depreciation.
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