What Is Book Value Per Share BVPS?

Book value per share (BVPS) tells investors the book value of a firm on a per-share basis. Investors use BVPS to gauge whether a stock price is undervalued by comparing it to the firm’s market value per share. Book value refers to a firm’s net asset value (NAV) or its total assets minus its total liabilities. The book value per share (BVPS) is a ratio that weighs stockholders‘ total equity against the number of shares outstanding.

Book Value Per Common Share (BVPS): Definition and Calculation

Assume XYZ repurchases 200,000 shares of stock, and 800,000 shares remain outstanding. 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 the preferred shareholder equity from the total equity. Let’s say that Company A has $12 million in stockholders’ equity, $2 million of preferred stock, and an average of 2,500,000 shares outstanding.

• In this case, the value of the assets should be reduced by the size of any secured loans tied to them.
• For example, if ABC Company has $750 million in shareholder equity on its balance sheet and total outstanding shares of 50 million, its BVPS is $15.
• Outdated equipment may still add to book value, whereas appreciation in property may not be included.
• While Book Value Per Share can be a helpful indicator of a company’s tangible net assets, it has several limitations that investors should be aware of.
• Taking this idea forward, investors will often look at a company’s book value per share or BVPS.

Know the True Value of Your Equity Position

Companies account for their assets in different ways in different industries, and sometimes even within the same industry. This muddles book value, creating as many value traps as value opportunities. Value investors use BVPS to identify stocks that are trading below their intrinsic value, indicating potential undervaluation. While adobe acrobat pro dc with e Book Value Per Share can be a helpful indicator of a company’s tangible net assets, it has several limitations that investors should be aware of. If the market price for a share is higher than the BVPS, then the stock may be seen as overvalued. There is also a book value used by accountants to value the assets owned by a company.

Book Value Equals Market Value

It can offer a view of how the market values a particular company’s stock and whether that value is comparable to the BVPS. 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. A company’s stock is considered undervalued when BVPS is higher than a company’s market value or current stock price. If the BVPS increases, the stock is perceived as more valuable, and the price should increase.

As long as the accountants have done a good job (and the company’s executives aren’t crooked) we can use the common equity measure for our analytical purposes. It’s important to recognize that a higher market share price doesn’t necessarily mean the company is overvalued. Because BVPS only looks at balance sheet equity, it doesn’t account for intangibles that impact the company’s future sales and revenues. Comparing BVPS to current market share price is merely a way to bring context to the share price.

Market Capitalisation = Market Value of a Stock x Number of Outstanding Shares

A common way of increasing BVPS is for companies to buy back common stocks from shareholders. This reduces the stock’s outstanding shares and decreases the amount by which the total stockholders’ equity is divided. For example, in the above example, Company X could repurchase 500,000 shares to reduce its outstanding shares from 3,000,000 to 2,500,000. Whereas some price models and fundamental analyses are complex, calculating book value per share is fairly straightforward. At its core, it’s subtracting a company’s preferred stock from shareholder equity and dividing that sum by the average amount of outstanding shares. Another way to increase BVPS is for a company to repurchase common stock from shareholders.

If that business closed up shop and liquidated tomorrow, the BVPS is what each shareholder would receive as a payout for their equity stake. It’s an important figure to know because, used as a benchmark, it can show how under- or overvalued the current stock is by the market. In the example from a moment ago, a company has $1,000,000 in equity and 1,000,000 shares outstanding.

As noted above, another way to calculate book value is to subtract a business‘ total liabilities from its total assets. Market value—also known as market cap—is calculated by multiplying a company’s outstanding shares by its current market price. 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. The good news is that the number is clearly stated and usually does not need to be adjusted for analytical purposes.

Likewise, if BVPS is $15 and the current price is $14, it’s very gently under-valued and could be a good value play. The book value per share of a company is the total value of the company’s net assets divided by the number of shares that are outstanding. It depends on a number of factors, such as the company’s financial statements, competitive landscape, and management team.

Now, let’s say that the company invests in a new piece of equipment that costs $500,000. The book value per share would still be $1 even though the company’s assets have increased in value. 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. The book value per share of an undervalued stock is higher than its current market price, so book value per share can help investors appraise a stock price. If a company’s BVPS is higher than its market value per share (the current stock price), the stock may be considered undervalued.