Book Value Per Share BVPS: Formula and Calculation
Book Value Per Share BVPS: Formula and Calculation

The Form 10-Q is a report that is submitted quarterly by publicly traded corporations to the United States Federal Securities and Exchange Commission (SEC) as mandated. The Form 10-K, on the other hand, is submitted annually to the SEC which gives a comprehensive summary of a company’s financial performance. The book value per share formula and calculation is a metric used to compare the market value of a firm per share.

They see it as a good chance to buy shares at a price that is actually lower than the stocks’ value. As explained earlier, companies also use share repurchases (buybacks) from existing shareholders to increase their BVPS. For instance, company ABC can increase its BVPS by repurchasing common stock from shareholders. This means the book value per share calculation can begin with finding the necessary balance sheet data. These data can be gotten from the latest financial report such as 10-Q, 10-K, etc.

  1. More so, if company ABC uses $300,000 of its earnings to reduce liabilities, its BVPS and common equity can also increase.
  2. Alternatively, another method to increase the BVPS is via share repurchases (i.e. buybacks) from existing shareholders.
  3. The difference between book value per share and market share price is as follows.
  4. That said, looking deeper into book value will give you a better understanding of the company.
  5. Tangible book value (TBV) of a company is what common shareholders can expect to receive if a firm goes bankrupt—thereby forcing the liquidation of its assets at the book value price.

Although infrequent, many value investors will see a book value of equity per share below the market share price as a “buy” signal. The formula for BVPS involves taking the book value of equity and dividing that figure by the weighted average of shares outstanding. The book value is used as an indicator of the value of a company’s stock, and it can be used to predict the possible market price of a share at a given time in the future. It is more of an accounting-based tool that doesn’t necessarily reflect the true market value of publicly traded companies.

Price-to-Book (P/B) Ratio

The BVPS formula involves taking the book value of equity and dividing the figure by the total number of outstanding shares. The value of preferred equity claims should also be subtracted from the total equity to give us the numerator (book value of equity) of the book value per share formula. The price of a single publicly traded stock divided by the number of shares outstanding gives us the market price per share.

The P/B ratio is an easy calculation, and it's published in the stock summaries on any major stock research website. EPS, or earnings per share, measures net income as a percentage of a company's outstanding shares. Stockholders' equity is represented by book value per share, which may be seen at the top of this page. A company's balance sheet may not accurately represent what would happen if it sold all of its assets, which should be taken into account. The BVPS is rarely ever used internally and is primarily utilized by investors as they assess the price of a company's stock.

Calculating a company's value per share using equity accessible to common shareholders is possible using the book value per share formula. It's also known as stockholder's equity, owner's equity, shareholder's equity, or just equity, and it refers to a company's assets minus its liabilities. The price-to-book ratio is simple to calculate—you divide the market price per share by the book value per share. So, if the company's shares had a current market value of $13.17, its price-to-book ratio would be 1.25 ($13.17 ÷ $10.50).

You can calculate book value per share from the balance sheet because the information needed for this calculation is found in the company’s balance sheet. Book value per share analysis involves taking the ratio of a company’s common equity divided by its number of outstanding translation exposure shares. Hence, the book value per share interpretation effectively indicates a company’s net asset value (i.e. total assets – total liabilities) on a per-share basis. A company can use a portion of its earnings to buy assets that would increase common equity along with BVPS.

The formula for Calculating the Book Value Per Share

Now, let’s say that XYZ Company has total equity of $500,000 and 2,000,000 shares outstanding. In this case, each share of stock would be worth $0.50 if the company got liquidated. To calculate book value per share, simply divide a company’s total common equity by the number of shares outstanding. For example, if a company has total common equity of $1,000,000 and 1,000,000 shares outstanding, then its book value per share would be $1.

Market Value Per Share vs. Book Value Per Share

Intangible assets, such as goodwill, are not included in tangible book value because they cannot be sold during liquidation. However, companies with high tangible book values tend to offer shareholders more downside protection in the case of bankruptcy. Take, for instance, high-tech software companies or banks usually have little tangible assets in relation to their intellectual property and human capital. Hence, in a book value calculation, these intangibles would not always be factored in.

If quality assets have been depreciated faster than the drop in their true market value, you've found a hidden value that may help hold up the stock price in the future. If assets are being depreciated slower than the drop in market value, then the book value will be above the true value, creating a value trap for investors who only glance at the P/B ratio. Book value per share (BVPS) is calculated as the equity accessible to common shareholders divided by the total number of outstanding shares. This number calculates a company's book value per share and serves as the minimal measure of its equity.

The market price, as opposed to book value, indicates the company's future growth potential. When computing ROE on a per-share basis, book value per share is also utilized in the calculation. The market value depends on the current market price and how many outstanding shares exist. So, it reflects current prices and changes often as it considers sentiment around future growth in the market. Book value per share (BVPS) is a figure that evaluates the value of a company's claims based on its net assets.

Book value is the amount found by totaling a company's tangible assets (such as stocks, bonds, inventory, manufacturing equipment, real estate, and so forth) and subtracting its liabilities. In theory, book value should include everything down to the pencils and staples used by employees, but for simplicity's sake, companies generally only include large assets that are easily quantified. Earnings, debt, and assets are the building blocks of any public company's financial statements. For the purpose of disclosure, companies break these three elements into more refined figures for investors to examine. Investors can calculate valuation ratios from these to make it easier to compare companies. Among these, the book value and the price-to-book ratio (P/B ratio) are staples for value investors.

It is calculated by the company as shareholders’ equity (book value) divided by the number of shares outstanding. Book value per share relates to shareholders’ equity divided by the number of common shares. Earnings per share would be the net income that common shareholders would receive per share (company’s net profits divided by outstanding common shares). Let’s say that Company A has $12 million in stockholders’ equity, $2 million of preferred stock, and an average of 2,500,000 shares outstanding. You can use the book value per share formula to help calculate the book value per share of the company.

While BVPS is set at a certain price per share, the market price per share varies depending purely on supply and demand in the market. Say, for example, that in the XYZ case the company buys back 200,000 shares of stock and there are still 800,000 outstanding. In addition to stock repurchases, a business may raise BVPS by increasing the asset balance and decreasing liabilities. If a business earns 500,000 and spends 200,000 of that money on assets, then the value of the common stock rises along with the BVPS as well. If XYZ saves 300,000 in liabilities by using that money, the company's stock price rises.

The TBV applies only to physical items that can be handled and sold at an easily determined market value. Tangible book value per share thus focuses solely on the value of an organization's tangible assets, such as buildings and equipment. Once the value of the tangible assets is determined, that amount is divided by the number of the company’s current outstanding shares. The book value of equity which is often called the shareholders’ equity is the value of a company’s assets as if all of its assets were liquidated to pay off its liabilities. This means that the amount of cash that remains when all outstanding liabilities are paid is expressed as the book value of equity.

A short-term event, such as a stock buy-back, can skew period-ending values, and this would influence results and diminish their reliability. Despite the increase in share price (and market capitalization), the book value of equity per share remained unchanged. Often called shareholder’s equity, the “book value of equity” is an accrual accounting-based metric prepared for bookkeeping purposes and recorded on the balance sheet.

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