Definition
Often used by analysts to measure the safety of an investment, the book value per share, or BV, calculates the dollars per share left over after all debt of the company has been paid to creditors.
Calculation
Book Value per Share = Stockholders' Equity / Shares of Common Stock Outstanding
Where:
Stockholders' Equity = Total Shareholder Equity - Preferred Equity
Explanation
The book value per share is the accounting value of each share of stock, which can be very different than the stock's market value per share. Market value, or price per share, is a reflection of supply and demand for a stock, which is usually based on some expectation of future performance. Book value is based on retained earnings, and the number of shares outstanding.
Analysts sometimes compare the market price to book value per share. When the market price or value is currently set below the book value, the company is considered undervalued, and might be deemed an attractive stock to buy.
Example
The balance sheet of Company A indicates Total Stockholder Equity of $15,420,000, and Preferred Stock of $3,767,000. Company A issued 693,870 shares of common stock. The book value per share would then be:
= ($15,420,000 - $3,767,000) / 693,870 = $11,653,000 / 693,870, or $16.79
Related Terms
- The financial metric known as the price to book ratio measures the market price per share of common stock of a company relative to the book value of each share. The price to book ratio is used to determine if a company's stock price is undervalued.
Moneyzine EditorSeptember 21st, 2023 - The financial accounting term owner’s equity is used to describe the resources that are owned by the common and preferred stock shareholders of a company. Owner’s equity is reported on a company’s balance sheet.Moneyzine EditorNovember 29th, 2022
The financial accounting term book value refers to the original cost of an asset minus the accumulated depreciation on that same asset. The total book value of all assets can be found on the company's balance sheet.Moneyzine EditorJanuary 9th, 2024
