Book value per common share (or, simply book value per share – BVPS) is a method to calculate the per-share book value of a company based on common shareholders’ equity in the company. The book value of a company is the difference between that company’s total assets and total liabilities, and not its share price in the market. Book value per share (BVPS) measures the book value of a firm on a per-share basis. BVPS is found by dividing equity available to common shareholders by the number of outstanding shares.
Yes, if a company’s liabilities exceed its assets, the BVPS can be negative, signaling potential financial distress. By multiplying the diluted share count of 1.4bn by the corresponding share price for the year, we can calculate the market capitalization for each year. As suggested by the name, the “book” value per share calculation begins with finding the necessary balance sheet data from the latest financial report (e.g. 10-K, 10-Q). BVPS is typically calculated quarterly or annually, coinciding with the company’s financial reporting periods.
How Does BVPS Differ from Market Value Per Share?
But be sure to remember that the book value per share is not the only metric that you should consider when making an investment decision. There are a number of other factors that you need to take into account when considering an investment. For example, the company’s financial real estate development model statements, competitive landscape, and management team.
How to Interpret BVPS?
Book Value Per Share is calculated by dividing the total common equity by the number of outstanding shares. The difference between a company’s total assets and total liabilities is its net asset value, or the value remaining for equity shareholders. However, the market value per share—a forward-looking metric—accounts for a company’s future earning power. As a company’s potential profitability, or its expected growth rate, increases, the corresponding market value per share will also increase.
On the other hand, if XYZ uses $300,000 of the earnings to reduce liabilities, common equity also increases. The book value per share (BVPS) metric helps investors gauge whether a stock price is undervalued by comparing it to the firm’s market value per share. BVPS is what shareholders receive if the firm is liquidated, all tangible assets are sold, and all liabilities are paid. When calculating the book value per share of a company, we base the calculation on the common stockholders’ equity, and the preferred stock should be excluded from the value of equity.
- If XYZ can generate higher profits and use those profits to buy assets or reduce liabilities, the firm’s common equity increases.
- If a company has a book value per share that’s higher than its market value per share, it’s an undervalued stock.
- Undervalued stock that is trading well below its book value can be an attractive option for some investors.
- If the BVPS increases, the stock is perceived as more valuable, and the price should increase.
Book Value, Face Value & Market Value – Video Explanation
The book value per share (BVPS) ratio compares the equity held by common stockholders to the total number of outstanding shares. To put it simply, this calculates a company’s per-share total assets less total liabilities. If XYZ can generate higher profits and use those profits to buy more assets or reduce liabilities, the firm’s common equity increases. If, for example, the company generates $500,000 in earnings and uses $200,000 of the profits to buy assets, common equity increases along with BVPS.
The second part divides the shareholders’ equity available to equity stockholders by the number of common shares. BVPS represents the accounting value of each share based on the company’s equity, while the market value per share is determined by the stock’s current trading price in the market. For companies seeking to increase their book value of equity per share (BVPS), profitable reinvestments can lead to more cash.
We need to deduct the preferred stocks from the shareholders’ equity to do that. BVPS is typically calculated and published periodically, such as gift tax return definition quarterly or annually. This infrequency means that BVPS may not always reflect the most up-to-date value of a company’s assets and liabilities.
Book Value Per Share or BVPS is used by investors to determine if a company’s stock price is undervalued compared to its market value per share. Repurchasing 500,000 common stocks from the company’s shareholders increases the BVPS from $5 to $6. While BVPS considers the residual equity per-share for a company’s stock, net asset value, or NAV, is a per-share value calculated for a mutual fund or an exchange-traded fund, or ETF.