Calculate Book Value per Share: Examples & Guide 2025

Book value per share is a financial metric that calculates the per-share value of a company based on its balance sheet. It represents the net worth of a company and provides insight into the value that each share of stock holds. 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.

At the same time, we use book value in the case of the ROE formula when we calculate the ROE per share. Therefore, investors remain in the dark about the book value of an organisation in the in-between periods. Booking value, more commonly known as book value, is an organisation’s worth according to its Balance Sheet. In another sense, it can also refer to the book value of an asset that is reached after deducting the accumulated depreciation from its original value. CFI is the global institution behind the financial modeling and valuation analyst FMVA® Designation.

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• Although infrequent, many value investors will see a book value of equity per share below the market share price as a “buy” signal.
• Earnings per share would be the net income that common shareholders would receive per share (company’s net profits divided by outstanding common shares).
• Lastly, it’s crucial to consider the industry and specific circumstances of the company.
• InvestingPro offers detailed insights into companies’ Book Value Per Share including sector benchmarks and competitor analysis.
• Book value is calculated by taking the aggregate value of all its assets and deducting all the liabilities from it.

CFI is on a mission to enable anyone to be a great financial analyst and have a great career path. In order to help you advance your career, CFI has compiled many resources to assist you along the path. Clear differences between the book value and market value of equity can occur, which happens more often than not for the vast majority of companies. If relevant, the value of preferred equity claims should also be subtracted from the numerator, the book value of equity.

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The P/B ratio is a useful valuation tool that helps in understanding how many times a stock is trading over and above a company’s book value. That said, only looking at the P/B ratio of a stock will never give you a complete picture. Generally, the book value per share is used by investors (especially value investors) to determine whether a share is fairly valued. If the BVPS is less than the price of the stock, then that tells an investor that the stock could be overvalued—it costs more than the assets it’s entitled to. On the other hand, when the BVPS is more than the stock price, that means an investor can essentially buy a share in a company’s assets for less than those assets are actually worth. Preferred equity is a measure of equity which only takes into account the preferred stockholders, and disregards the common stockholders.

How Do You Calculate Book Value per Share?

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Sandra’s areas of focus include advising real estate agents, brokers, and investors. Alongside her accounting practice, Sandra is a Money and Life Coach for women in business. This means that each share of the company would be worth $8 if the company got liquidated. Now, let’s say that you’re considering investing in either Company A or Company B. Given that Company B has a higher book value per share, you might find it tempting to invest in that company. If the book value of a company is higher than its market value, it indicates that the stock market is less confident in the organisation’s earning capability, albeit its book value might. Companies or industries that extensively rely on their human capital will have an inappropriate reflection of their worth in their financial statements.

Limitations of BVPS

• The UK’s most important stock index started the day negatively on Friday, falling more than 0.6% in response to Donald Trump’s sweeping trade tariffs.
• Book value per share is just one of the methods for comparison in valuing of a company.
• As a formula, a company’s book value is the difference between the tangible net assets of the company and its liabilities.
• Detailed notes accompanying the balance sheet often explain the methodology used, such as the exclusion of intangible assets or recent changes in outstanding shares, providing clarity for investors.
• However, book value per share can be a useful metric to keep in mind when you’re analyzing potential investments.

Those companies will have less money to invest in growing their businesses, which can have a negative impact on the labor market if it leads to laying off workers or not adding jobs. The price to book ratio is more appropriate for mature companies, like the P/E ratio, and is especially accurate for those that are asset-heavy (e.g. manufacturing, industrials). From a kennedy introduces bill expanding louisiana disaster victims different perspective, underperformance can lead to lower P/B ratios, as the market value (i.e. the numerator) should rightfully decrease. We hope this comprehensive guide has provided you with a better understanding of book value per share and its significance in the world of finance. As always, conducting thorough research and analysis is vital when making investment decisions, and book value per share is just one tool in your toolbox.

Limitation of P/B ratio

Now that we have a clear understanding of the concept of book value per share, let’s move on to the next section and explore the rent receipt template different components of a balance sheet. Once you have the book value per share for each company, you can compare them to get an idea of the financial health of each company. Generally, a higher book value per share indicates that the company is in better financial health than a company with a lower book value per share. Finally, it is important to compare the book value per share to the company’s industry peers. If the book value per share is significantly lower than the industry average, it may indicate that the company is not performing as well as its peers. Sandra Habiger is a Chartered Professional Accountant with a Bachelor’s Degree in Business Administration from the University of Washington.

A higher book value per share ratio indicates that the company has more assets than liabilities and is likely to be a more attractive investment. Conversely, a lower book value per share ratio suggests that the company has more liabilities than assets and may be a riskier investment. It is also important to compare the book value per share to the company’s earnings per share. If the book value per share is higher than the earnings per share, it may indicate that the company is not generating enough profits to justify its current market price. Book Value Per Share is calculated by dividing the total common equity by the number of outstanding shares.

Understanding how to calculate book value per share requires a sound understanding of the components of a balance sheet, as this is where the necessary information is derived. To compare book value per share across different companies, you will need to find the financial statements of each company. Once you have the financial statements, you can calculate the book value per share for each company. BVPS is typically calculated quarterly or annually, coinciding with the company’s financial reporting periods.

Limitations of Book Value per Share

It is crucial to consider these limitations in conjunction with other financial metrics and qualitative factors when assessing a company’s value and investment potential. Book value per share should be used as a tool in a broader analysis, in combination with factors such as earnings, cash flow, industry dynamics, and the competitive landscape. Interpreting book value per share ratios can help investors determine the intrinsic value of a company’s stock.

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Nevertheless, most companies with expectations to grow and produce profits in the future will have a book value of equity per share lower than their current publicly traded market share price. Although infrequent, many value investors will see a book value of equity per share below the market share price as a “buy” signal. But an important point to understand is that these investors view this simply as a sign that the company is potentially undervalued, not that the fundamentals of the company are necessarily strong. The final step of our price to book ratio calculation under the first approach is to divide our company’s market cap by its book value of equity (BVE).