When assessing shares, I tend to look at this metric (after factoring in dividends paid), which is the compound annual growth rate (cagr) in book value per share. I look at it also in conjunction with the share count cagr.
The reasons being;
it shows the degree to which share dilution waters down any absolute increase in profit (when compared to the company net book value cagr).
to my mind it reveals the cost of share options (which, I think, go through company reserves under current accounting regulations, by-passing the P&L but still reducing book value)
it helps to highlight the true difference between company adjusted profits and reported profits (it’s interesting that many director remuneration schemes are based on company adjusted profits, rather than reported profits! ). For instance the company may be reporting a hefty adjusted profit for many years, but book value per share remains the same or decreases.
Assuming I go through the profit adjustments to check their validity, how would this process still miss good opportunities in companies which report large profits but have flat or negative book value cagr per share? If so, which types of company could I be missing out on?
On the subject of adjusting profit items, perhaps intangible write-offs should not inflate operating profit to get to company adjusted profits - they represent cash the company has spent and hasn’t hit the p&l until it is written off there (the directors are clearly happy enough to reflect the incremental revenue from the purchase in the p&l, after all)?