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In many situations, the Book Value per Share, or BV, can be a fairly meaningless value. Technically, it is considered to be the accounting value of each share, which can be drastically different than what the market value per share is for a common stock. There is also very little that market value and book value have in common. Market value, or price per share, is a reflection of supply and demand for a stock. Usually this is based on some expectation of future performance.
Book value is based on retained earnings, and the number of shares outstanding. The calculation for Book Value per Share is:
Equity of Common Stockholders / Shares of Common Stock Outstanding
There is one circumstance where BV can be useful. That is when the market price or value is currently set below the book value. When this occurs, the company is considered undervalued, and might be considered an attractive stock to buy. |
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