baby and bathwater, page-35

In short, no I am not saying BHP is worth $11. BHP generates a far higher return on its book (37.5%), and therefore deserves to trade at a substantial premium to its book value.

To illustrate, suppose that as an investor you have the choice of two companies, both with a book value of $100

Company A generates a 12.5% return on their $100 book Therefore, they are generating $12.5 million in net profit on their book

Company B generates a 37.5% return on their $100 book Therefore, they are generating $37.5 million in net profit on their book

So, each dollar of book value of Company B is worth more, it has a higher value, as it is able to achieve a higher return. This doesn't make Company A a bad company, or a company that isn't worthy of consideration as an investment. Rather, it just means that it doesn't deserve to trade at the same multiple of book value that company B does.

I hope this clarifies.