Book Value Per Share BVPS: Definition, Calculation & Importance

It can offer a view of how the market values a particular company’s stock and whether that value is comparable to the BVPS. Book value is the value of a company’s assets after netting out its liabilities. It approximates the total value shareholders would receive if the company were liquidated.

What Does Book Value Per Share (BVPS) Tell Investors?

Adam received his master’s in economics from The New School for Social Research and his Ph.D. from the University of Wisconsin-Madison in sociology. He currently researches and teaches economic sociology and the social studies of finance at the Hebrew University in Jerusalem. Comparing BVPS to the market price of a stock is known as the market-to-book ratio, or the price-to-book ratio. Sandra Habiger is a Chartered Professional Accountant with a Bachelor’s Degree in Business Administration from the University of Washington. Sandra’s areas of focus include advising real estate agents, brokers, and investors.

1. It depends on a number of factors, such as the company’s financial statements, competitive landscape, and management team.
2. There are a number of other factors that you need to take into account when considering an investment.
3. 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.
4. Investors must compare the BVPS to the market price of the stock to begin to analyze how it impacts them.
5. If XYZ uses $300,000 of its earnings to reduce liabilities, common equity also increases.

Book Value Per Share Formula

Yes, if a company’s liabilities exceed its assets, the BVPS can be negative, signaling potential financial distress. Adam Hayes, Ph.D., CFA, is a financial writer with 15+ years Wall Street experience as a derivatives trader. Besides his extensive derivative trading expertise, Adam is an expert in economics and behavioral finance.

How to Calculate Book Value Per Share (BVPS)

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. 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. The market value per share is a company’s current stock price, and it reflects a value that market participants are willing to pay for its common share.

The book value of equity (BVE) is the value of a company’s assets, as if all its assets were hypothetically liquidated to pay off its liabilities. 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. 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. The formula is the same for calculating shareholders’ equity or stockholders’ equity. As companies acquire new assets, those assets are recorded on the balance sheet at their cost.

A company that has assets of $700 million and liabilities of $500 million, would have a book value, or shareholders’ equity, of $200 million. Value investors look for relatively low book values (using metrics like P/B ratio or BVPS) but otherwise strong fundamentals in their quest to find undervalued companies. BVPS is typically calculated and published periodically, such as 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.

Is book value the same as equity?

The P/B ratio can be calculated either at a total value level, or at a per share level. The book value of a company is the difference between that company’s total assets and its total liabilities, as shown on the company’s balance sheet. 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. BVPS is significant for investors because it offers a snapshot of a company’s net asset value per share.

In return, the accumulation of earnings could be used to reduce liabilities, which leads to higher book value of equity (and BVPS). The formula for BVPS involves taking the book value of equity and dividing that figure by the weighted average of shares outstanding. Often called shareholders equity, the “book value of equity” is an accrual accounting-based metric prepared for bookkeeping purposes and recorded on the balance sheet. If a company’s share price falls below its BVPS, a corporate raider could make a risk-free profit by buying the company and liquidating it. If book value is negative, where a company’s liabilities exceed its assets, this is known as a balance sheet insolvency.

BVPS is more relevant for asset-heavy companies, such as manufacturing firms, where physical assets constitute a significant portion of the balance sheet. BVPS is typically calculated quarterly or annually, coinciding with the company’s financial reporting periods. While Book Value Per Share can be a helpful product cost formula indicator of a company’s tangible net assets, it has several limitations that investors should be aware of. Conversely, if the market value per share exceeds BVPS, the stock might be perceived as overvalued.

It’s important to use the average number of outstanding shares in this calculation. A short-term event, such as a stock buy-back, can skew period-ending values, and this would influence results and diminish their reliability. 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 how does batch size affect training below its book value can be an attractive option for some investors. Companies typically report their book value quarterly, and this means that the latest book value may not reflect the company’s updated performance on a given day during the new quarter. A company’s accounting practices, especially regarding depreciation and amortization, can also significantly affect its book value.

Despite the increase in share price (and market capitalization), the book value of equity per share (BVPS) remained unchanged in Year 1 and 2. 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. For companies seeking to increase their book value of equity per share (BVPS), profitable reinvestments can lead to more cash.

Alongside her accounting practice, Sandra is a Money and Life Coach for women in business. Even though book value per share isn’t perfect, it’s still a useful metric to keep in mind when you’re analyzing potential investments. There are other factors that you need to take into consideration before making an investment. However, book value per share can be a useful metric to keep in mind when you’re analyzing potential investments.