Book Value Per Share BVPS Formula + Calculator

A company’s “Book Value”, also referred to as Shareholder’s Equity or Owner’s Equity, can be calculated by subtracting Total Liabilities from Total Assets. In sum, there’s no foolproof guarantee of investment returns, or investment safety, at a certain P/B level. A low P/B ratio usually suggests that a company, or its industry, or both, are out of favour. When deciding to invest in the market, it is important to know the actual share value of a company and compare it with market value and trends. This helps you better create a picture of the investment and how lucrative it will be for you in the long run. In fact, the two terms may sound similar – there are, however, certain differences between them.

Deriving the book value of a company becomes easier when you know where to look. Companies report their total assets and total liabilities on their balance sheets on a quarterly and annual basis. Additionally, it is also available as shareholders’ equity on the balance sheet. Since book value per share takes into account the shareholders’ equity divided among the total number of shareholders, it denotes the amount that each shareholder is entitled to receive.

1. It is possible to get the price per book value by dividing the market price of a company’s shares by its book value per share.
2. It gives a more comprehensive, clearer picture of book value per share when used in the formula.
3. One can look at their book value per share to compare the value of different companies.

After subtracting that, the net book value or shareholders’ equity was about $74.67 billion for Walmart during the given period. The book value literally means the value of a business according to its books or accounts, as reflected on its financial statements. Theoretically, it is what investors would get if they sold all the company’s assets and paid all its debts and obligations. Therefore, book value is roughly equal to the amount stockholders would receive if they decided to liquidate the company. Now, we have to calculate how much common shareholders will be getting from the shareholders’ equity.

For example, Walmart’s January 31, 2012 balance sheet indicates that shareholders’ equity has a value of $71.3 billion. The number is clearly stated as a subtotal in the equity section of the balance sheet. The two numbers can be different, usually because the issuer has been buying back its own stock. In this case, the shares outstanding number is stated at 3.36 billion, so our BVPS number is $71.3 billion divided by 3.36 billion, which equals $21.22. At the time Walmart’s 10-K for 2012 came out, the stock was trading in the $61 range, so the P/BVPS multiple at that time was around 2.9 times.

How Can Companies Increase BVPS?

The book value per share is calculated using historical costs, but the market value per share is a forward-looking metric that takes into account a company’s earning power in the future. With increases in a company’s estimated profitability, expected growth, and safety of its business, the market value per share grows higher. Significant differences between the book value per share and the market value per share arise due to the ways in which accounting principles classify certain transactions. 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.

If we assume the company has preferred equity of $3mm and a weighted average share count of 4mm, the BVPS is $3.00 (calculated as $15mm less $3mm, divided by 4mm shares). On the other hand, book value per share is an accounting-based tool that is calculated using historical costs. Unlike the market value per share, the metric is not forward-looking, and it does not reflect the actual market value of a company’s shares.

Book Value Per Share Formula (BVPS)

However, investors use it to determine if a stock price is overvalued or undervalued based on the market value per share of the company. Stocks are deemed cheap if their BVPS is greater than their current market value per share (the price at which they are currently trading). For example, let’s say that ABC Corporation has total equity of $1,000,000 and 1,000,000 shares outstanding. This means that each share of stock would be worth $1 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.

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. If a company’s share price falls below its BVPS, understanding nonprofit financial statements and the form 990 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.

How Do You Calculate Book Value?

If there is a certain sum from equity invested in the market by a company and a loss is incurred, the book value per share may not reflect it effectively. Market value per share is a metric that captures the future status of a company’s stock, while the book value per share is calculated on historical data. Say, for example, that a company invests money in an aggressive marketing campaign, which ends up increasing costs. 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.

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. Both book and market values offer meaningful insights into a company’s valuation. Comparing the two can help investors determine if a stock is overvalued or undervalued, given its assets, liabilities, and ability to generate income. Like all financial measurements, the real benefits come from recognizing the advantages and limitations of book and market values. The investor must determine when to use the book value, market value, or another tool to analyze a company.

What Is Book Value Per Common Share?

Book value per share tells you the true status of the shares of a company with respect to their price on the market. With those three assumptions, we can calculate the book value of equity as $1.6bn. In return, the accumulation of earnings could be used to reduce liabilities, which leads to higher book value of equity (and BVPS).

Book value per share is just one of the methods for comparison in valuing of a company. Enterprise value, or firm value,
market value, market capitalization, and other methods may be used in different circumstances or compared to one
another for contrast. For example, enterprise value would look at the market value of the company’s equity plus
its debt, whereas book value per share only looks at the equity on the balance sheet. Conceptually, book
value per share is similar to net worth, meaning it is assets minus debt, and may be looked at as though what would occur
if operations were to cease. One must consider that the balance sheet may not reflect with certain accuracy, what would
actually occur if a company did sell all of their assets. Now, let’s say that Company B has $8 million in stockholders’ equity and 1,000,000 outstanding shares.

As suggested by the name, the “book” value per share calculation begins with finding the necessary balance sheet data from the latest financial report (e.g. 10-K, 10-Q). 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. However, you would need to do some more research before making a final decision. There are other factors that you need to take into consideration before making an investment.

You also need to make sure that you have a clear understanding of the risks involved with any potential investment. Creditors who provide the necessary capital to the business are more interested in the company’s asset value. Therefore, https://simple-accounting.org/ creditors use book value to determine how much capital to lend to the company since assets make good collateral. The book valuation can also help to determine a company’s ability to pay back a loan over a given time.