Calculate Book Value Per Share

How to Calculate Book Value Per Share

Book Value Per Share (BVPS) serves as a crucial metric for assessing the intrinsic value of a company's shares. By understanding how to compute BVPS, investors can gain insights into a company’s financial standing, helping them make informed investment decisions.

Understanding the Components

To calculate BVPS, begin by determining the equity available to common shareholders. This involves subtracting total liabilities from total assets to get the book value, and then subtracting preferred equity from total equity. Posit this as Equity_{common} = Total Assets - Total Liabilities - Preferred Equity.

Calculation Formula

The principal formula for BVPS is straightforward. Divide the equity available to common shareholders by the total number of outstanding shares. Represent this mathematically as BVPS = \frac{Equity_{common}}{Total Shares Outstanding}. Ensuring the accuracy of both the numerator (equity) and the denominator (shares outstanding) is essential for the correct calculation.

Examples of Calculation

For example, a company with $10 million in common equity and 1 million shares outstanding would have a BVPS of $10. This calculation adjusts if the number of shares changes, such as in a share repurchase scenario. If the company were to repurchase 200,000 shares, leaving 800,000 shares outstanding, the new BVPS would be BVPS = \frac{10,000,000}{800,000} = $12.50.

Understanding BVPS calculation provides investors with a conservative approach to evaluate the real value of a company’s stocks and potentially predict future market prices.

How to Calculate Book Value Per Share (BVPS)

The Book Value Per Share (BVPS) is a fundamental measure used to determine the value of a company's stock relative to its equity available to common shareholders. Calculating BVPS involves a few critical steps that offer investors insights into whether a stock is potentially undervalued.

Understanding the Components

BVPS is calculated by subtracting preferred equity from the total equity and then dividing the result by the total number of outstanding shares. Begin by determining the total equity, which is the difference between a firm's total assets and its total liabilities (Total Equity = Total Assets - Total Liabilities). Next, adjust for preferred equity to focus only on the equity available to common shareholders (Equity Available to Common Shareholders = Total Equity - Preferred Equity).

Calculation Formula

To find the BVPS, use the formula: BVPS = (Total Equity - Preferred Equity) / Total Shares Outstanding. This formula provides a straightforward approach to evaluating a company's per-share value, considering only the net assets attributable to common shareholders.

Assessing Stock Value

BVPS serves as a conservative, historical-cost-based metric that juxtaposes well against the market value per share, which considers future earnings potential. By comparing BVPS with the current market price of the stock, investors can assess whether the stock is undervalued. A BVPS higher than the market value per share suggests that the stock may be priced lower than its net worth.

In conclusion, calculating BVPS is a valuable skill for investors aiming to assess the intrinsic value of a company's shares using a conservative approach. By carefully analyzing these figures, investors can make informed decisions about their potential investments in undervalued stocks.

Examples of Calculating Book Value Per Share

Example 1: Basic Calculation

Assume Company A has total assets of $500,000 and total liabilities of $300,000. The outstanding shares are 40,000. First, find the shareholders' equity by subtracting liabilities from assets: $500,000 - $300,000 = $200,000. Next, divide shareholders' equity by the number of outstanding shares: $200,000 / 40,000 shares = $5.00 per share. Here, the book value per share is $5.00.

Example 2: Incorporating Preferred Stock

Company B has assets of $1,000,000, liabilities of $600,000, and preferred stock valued at $50,000. There are 100,000 common shares. First, calculate the common shareholders' equity: $1,000,000 - $600,000 - $50,000 = $350,000. Then, divide by the number of common shares: $350,000 / 100,000 shares = $3.50 per share. Thus, the book value per share, after accounting for preferred stock, is $3.50.

Example 3: Impact of Intangible Assets

Consider Company C with total assets of $800,000 (including $200,000 in intangible assets), total liabilities of $500,000, and 25,000 shares outstanding. Removing intangibles gives tangible assets: $800,000 - $200,000 = $600,000. The equity calculation is $600,000 - $500,000 = $100,000. Dividing by the shares outstanding: $100,000 / 25,000 shares = $4.00 per share. The tangible book value per share is $4.00.

Example 4: After Asset Depreciation

Company D reports assets of $500,000, liabilities of $200,000, and asset depreciation of $50,000. With 20,000 shares outstanding, first find adjusted equity: $500,000 - $50,000 - $200,000 = $250,000. Then, divide this equity by the number of shares: $250,000 / 20,000 shares = $12.50 per share. Post-depreciation, the book value per share is $12.50.

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Understanding how to calculate the book value per share is crucial for analysts and investors. Sourcetable simplifies this process. Type your request into the spreadsheet, and the AI assistant instantly performs the calculation using the formula Book Value Per Share = (Total Assets - Total Liabilities) / Number of Outstanding Shares. Results are displayed right in the spreadsheet, while the chat interface offers a step-by-step explanation of how the calculation was achieved, enhancing your understanding or preparing you for exams and business meetings.

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