how to calculate the book value per share

We’ll assume the trading price in Year 0 was $20.00, and in Year 2, the market share price increases to $26.00, which is a 30.0% year-over-year increase. The next assumption states that the weighted average of common shares outstanding is 1.4bn. The Book Value Per Share (BVPS) is the per-share value of equity on an accrual accounting basis that belongs to the common shareholders of a company. For instance, consider a given company that has a market value approximately equal to its book value. The company then hires a famous turnaround manager which excites investors, who bid the shares higher.

how to calculate the book value per share

How Does BVPS Differ from Market Value Per Share?

As for the next projection period, Year 2, we’ll simply extend each operating assumption from Year 1, and thus, the BVPS will be $1.14 again. We’ll now move to a modeling exercise, which you can access by filling out the form below.

The Difference Between Market Value per Share and Book Value per Share

A company’s stock buybacks decrease the book value and total common share count. Stock repurchases occur at current stock prices, which can result in a significant reduction in a company’s book value per common share. 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.

The Difference Between Book Value per Share and Net Asset Value (NAV)

  1. In other words, this measures a company’s total assets, minus its total liabilities, on a per-share basis.
  2. A company that has assets of $700 million and liabilities of $500 million, would have a book value, or shareholders’ equity, of $200 million.
  3. Discover the optimal frequency for recalculating Book Value per Share to stay abreast of a company’s evolving financial landscape.
  4. For example, let’s say that ABC Corporation has total equity of $1,000,000 and 1,000,000 shares outstanding.
  5. Armed with this knowledge, you’re better equipped to navigate the financial landscape and make informed investment decisions.

Explore how reinvesting profits contributes to the company’s net worth and, subsequently, its share value. Defining Book Value per Share Embark on your financial journey by grasping the essence of Book Value per Share. Learn how it provides a snapshot of a company’s net worth attributable to each outstanding share. Companies that store inventory in a warehouse can count all of that inventory toward their book value. However, tech companies that specialize in creating software don’t have an asset that is stored somewhere, and they don’t require expensive industrial equipment to produce their product.

Book Value Per Share: Definition, Formula & Example

To calculate the book value per share, you must first calculate the book value, then divide by the number of common shares. Also, since you’re working with common shares, you must subtract cafeteria plans grow in popularity the preferred shareholder equity from the total equity. For example, consider a company with a $100 million book value, mostly in stable real-estate, trading at a P/B of 0.95.

The calculation for BVPS uses historical costs and is frequently done using software such as Excel. 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. If XYZ uses $300,000 of its earnings to reduce liabilities, common equity also increases. So, if a company had $21 million in shareholders’ equity and two million outstanding common shares, its book value per share would be $10.50. Keep in mind this calculation doesn’t include any of the other line items that might be in the shareholders’ equity section, only common shares outstanding.

They may generate sales with that software, but there isn’t a warehouse full of software code that investors can look at to gauge future sales. One limitation of book value per share is that, in and of itself, it doesn’t tell you much as an investor. Investors must compare the BVPS to the market price of the stock to begin to analyze how it impacts them.

The book value per share (BVPS) is a ratio that weighs stockholders’ total equity against the number of shares outstanding. In other words, this measures a company’s total assets, minus its total liabilities, on a per-share basis. It may not include intangible assets such as patents, intellectual property, brand value, and goodwill. It also may not fully account for workers’ skills, human capital, and future profits and growth. Therefore, the market value — which is determined by the market (sellers and buyers) and is how much investors are willing to pay by accounting for all of these factors — will generally be higher. The book value of equity per share (BVPS) measures a stock’s valuation that allows investors to assess the financial health of a company.