Should the company dissolve, the book value per common share indicates the dollar value remaining for common shareholders after all assets are liquidated and all creditors are paid. 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 one company purchases another in an acquisition 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.
How Does BVPS Differ from Market Value Per Share?
Value investors look for companies with relatively low book values (using metrics like P/B ratio or BVPS) but otherwise strong fundamentals as potentially underpriced stocks in which to invest. The book value per share (BVPS) ratio compares the equity held by common stockholders to the total number of outstanding shares. To put it simply, this calculates a company’s per-share total assets less total liabilities. In theory, BVPS is the sum that shareholders would receive in the event that the firm was liquidated, all of the tangible assets were sold and all of the liabilities were paid.
- It provides a snapshot of a company’s financial position by presenting its assets, liabilities, and shareholders’ equity at a specific point in time.
- Intangible assets have value, just not in the same way that tangible assets do; you cannot easily liquidate them.
- For value investors, this may signal a good buy since the market price of a company generally carries some premium over book value.
- When compared to the current market value per share, the book value per share can provide information on how a company’s stock is valued.
Book Value Per Share (BVPS): Definition, Formula, How to Calculate, and Example
For example, intangible factors affect the value of a company’s shares and are left out when calculating the BVPS. On the other hand, book value per share is an accounting-based tool that is calculated using historical costs. Unlike https://www.bookkeeping-reviews.com/ 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. The calculation for BVPS uses historical costs and is frequently done using software such as Excel.
