What is book value per share with example?

Q: How do you calculate book value per share example?

The BVPS is calculated by dividing a companys common equity value by its total number of shares outstanding: For example, assume company ABCs value of common equity is $100 million, and it has shares outstanding of 10 million. Therefore, its BVPS is $10 ($100 million/10 million).

Q: What is book value in simple words?

Book value is a companys equity value as reported in its financial statements. The book value figure is typically viewed in relation to the companys stock value (market capitalization) and is determined by taking the total value of a companys assets and subtracting any of the liabilities the company still owes.

Book value per share is one alternative to assess whether the market price for a stock is overvalued or undervalued. Although it contains weaknesses. Calculating it is also easy, you only need to use arithmetic calculations. For the data, you can find it in the shareholders’ equity in the balance sheet.

Índice Show

What is the book value per share?
How to calculate book value per share
Why book value per share is important
How to increase book value per share
Why book value per share provides an inaccurate picture of the company’s stock price going forward
What is the Book Value Per Share?
Book Value Per Share Formula
What does the Book Value Per Share Indicate?
Methods to Increase the Book Value Per Share
Drawbacks of Book Value Per Share
Book Value Per Share Example
FAQs About Book Value Per Share
What is book value vs market value?
What is a good book value per share?
Is a high book value per share good or bad?
Is book value per share the same as earnings per share?
What is the book value per share of a company?
What is book value with example?
What is good book value per share?
How do you calculate book value per share example?
What is book value in simple words?

Book value per share is the ratio of shareholders’ equity to the average ordinary shares (common stock) outstanding. That is the amount that ordinary shareholders will receive when the company is liquidated.

For example, suppose you have 1,000 shares of a company, and the book value per share is Rp5. After paying all the liabilities, you will get a share of Rp5,000 (1,000 x Rp5).

You might use this metric to compare the market price of a company’s current shares, whether overvalued or undervalued. But remember, this metric is only based on accounting estimates, not based on market-based calculations.

The calculation is easy. You just divide the book value of shareholders’ equity by the average outstanding ordinary shares outstanding. You can find the numbers in the owner’s equity of the balance sheet. Here is the formula:

Book value per share = (Total equity – Preferred shares) / Average of outstanding ordinary shares

From the equation above, this metric only measures the value of ordinary shares. So, you have to deduct the total shareholder equity with preferred shares.

For example, a company reports total shareholder equity of IDR100,000 in 2019, of which around IDR10,000 is preferred stock. Meanwhile, the average outstanding ordinary share was 50,000 shares.

From the information, we can calculate the book value per share as :

Book value per share = (IDR100,000 – IDR10,000) / 50,000 = IDR 1.8 per share

Why use average shares outstanding? Total outstanding shares may change due to share buybacks or the issuance of new shares. It can deflect the results you get. So, for that reason, you should use the average number.

Investors might use this metric as supplementary information in analyzing the company’s stock price. It is a relative valuation to compare the market price per share of a company. If the value is lower than the market price per share, the stock is overvalued. Conversely, if the value is higher than the market price of the company’s shares, it is undervalued.

Say, on a stock exchange, the price of a company’s stock in the example above is IDR3 per share. Since the book value per share is IDR1,8, the stock is overvalued, and the share price will likely go down.

Two ways to increase book value per share:

Increase the total shareholder equity – the numerator value is higher
Reduce the number of shares outstanding – the denominator is lower

To increase shareholder equity, the company should post positive growth of retained earnings. And, retained earnings increase if the company’s net profit increases or dividend payments decrease. To understand this, you can derive the formula from shareholder equity (assuming other factors are constant), which is:

Shareholder equity = Initial retained earnings + Net income – Dividends

The next, shareholder equity also increases if the company uses the profit to reduce liabilities or buy more assets.

And, the final, the repurchase of common shares will also increase the book value per share. Buybacks reduce outstanding shares, causing the denominator to be lower.

For above case, if a company buys 10,000 shares, the outstanding shares decrease to 40,000. That will result a book value per share: (IDR 100,000 – IDR 10,000) / 40,000 = IDR 2.25 per share.

The weakness of this metric is that its value is based on accounting calculations. It provides foresight, so it is a less accurate measure to predict the company’s stock price.

Book value does not reflect factors such as investors’ perception. In fact, such factors can affect market prices for company shares. The book value also does not provide complete information about the company’s free cash flow, a key indicator in valuation using the discounted cash flow method.

Book value per share is the portion of a company’s equity that’s attributed to each share of common stock if the company gets liquidated.

To calculate book value per share, simply divide a company’s total equity by the number of shares outstanding.

The book value per share metric can be useful in identifying undervalued stock prices, but it has its limitations.

There are limitations of book value per share. It doesn’t take into account intangible assets and it focuses on historical costs rather than current stock price values.

Book value per share is the portion of a company’s equity that’s attributed to each share of common stock if the company gets liquidated. It’s a measure of what shareholders would theoretically get if they sold all of the assets of the company and paid off all of its liabilities.

To calculate book value per share, simply divide a company’s total equity by the number of shares outstanding. For example, if a company has total equity of $1,000,000 and 1,000,000 shares outstanding, then its book value per share would be $1.

Let’s talk more about this metric. We’ll discuss its importance and how you can use it. We’ll also touch on the drawbacks and how best to use book value per share.

The book value per share formula is very simple. All you need to do is divide a company’s total equity by the number of shares outstanding. The exact formula is as follows:

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.

Now, let’s say that XYZ Company has total equity of $500,000 and 2,000,000 shares outstanding. In this case, each share of stock would be worth $0.50 if the company got liquidated.

As you can see from these examples, book value per share can vary widely from one company to the next.

The book value per share metric can be useful in identifying undervalued stocks. If a stock is trading below its book value per share, it means that the market is valuing the company at less than its liquidation value.

Of course, this doesn’t necessarily mean that the stock is a good buy. There are other factors that you need to take into consideration before making an investment.

However, book value per share can be a useful metric to keep in mind when you’re analyzing potential investments.

There are a few different ways that companies can increase their book value per share.

One way is to simply increase the total equity of the company. You can do this through share repurchases, which reduce the number of shares outstanding, or by issuing new shares of stock.

Another way to increase book value per share is to decrease the liabilities of the company. You may do this through debt reduction or by selling off assets.

A third way to increase book value per share is to increase the value of the asset balance sheet. You can do this by investing in new equipment or property, or by increasing the efficiency of the company’s operations.

As you can see, there are a few different ways that companies can increase their book value per share.

There are some limitations to the book value per share metric that you should be aware of.

First of all, it doesn’t take into account intangible assets. These are assets that don’t have a physical presence, such as patents or trademarks.

Another limitation of book value per share is that it focuses on historical costs rather than current market values. This means that it can sometimes be misleading.

In the example from a moment ago, a company has $1,000,000 in equity and 1,000,000 shares outstanding. Thus, the book value per share would be $1.

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.

So the book value per share metric has its limitations. Even though book value per share isn’t perfect, it’s still a useful metric to keep in mind when you’re analyzing potential investments.

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. You can use the formula for book value outlined above to help calculate the book value per share of the company.

The calculations would look like this:

$12 million in Stockholders’ Equity – $2 million of Preferred Stock ÷ 2,500,000 Shares Outstanding = $4.00 Book Value Per Share

Now, let’s say that Company B has $8 million in stockholders’ equity and 1,000,000 outstanding shares.

Using the same share basis formula, we can calculate the book value per share of Company B.

The calculations would look like this:

$8 million in Stockholders’ Equity – $0 million of Preferred Stock ÷ 1,000,000 Shares Outstanding = $8.00 Book Value Per Share

As you can see, the average of shares for Company B is $8.00.

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.

The book value per share is just one metric that you should look at when considering an investment.

It’s important to remember that the book value per share is not the only metric that you should consider when making an investment decision.

There are a number of other factors that you need to take into account. For example, the company’s financial statements, competitive landscape, and management team.

You also need to make sure that you have a clear understanding of the risks involved with any potential investment.

Remember, even if a company has a high book value per share, there’s no guarantee that it will be a successful investment.

Summary

In closing, it’s easy to see why the book value per share is such an important metric. It’s a simple way to compare the value of a company’s assets to the number of shares that are outstanding.

But be sure to remember that the book value per share is not the only metric that you should consider when making an investment decision.

Let FreshBooks Crunch The Numbers For You

What is book value vs market value?

The book value of a company is the amount of money that shareholders would get if liabilities were paid off and assets were liquidated. The market value of a company is based on the current stock market price and how many shares are outstanding.

It depends on a number of factors, such as the company’s financial statements, competitive landscape, and management team.

Even if a company has a high book value per share, there’s no guarantee that it will be a successful investment. This is why it’s so important to do your homework before making any investment decisions.

If a company has a book value per share that’s higher than its market value per share, it’s an undervalued stock. As the book share value of the company increases, the stock will start to become more valuable and increase.

Book value per share relates to shareholders’ equity divided by the number of common shares. Earnings per share would be the net income that common shareholders would receive.

The book value per share of a company is the total value of the company’s assets divided by the number of shares that are outstanding.

What is book value with example?

Book Value Formula Suppose that XYZ Company has total assets of $100 million and total liabilities of $80 million. Then, the book valuation of the company is $20 million. If the company sold its assets and paid its liabilities, the net worth of the business would be $20 million.

A good price to book value is less than 1. It signals a solid undervalued company. However, a price to value of less than 3 is also accepted among value investors.

The BVPS is calculated by dividing a company's common equity value by its total number of shares outstanding: For example, assume company ABC's value of common equity is $100 million, and it has shares outstanding of 10 million. Therefore, its BVPS is $10 ($100 million/10 million).

What is book value in simple words?

Book value is a company's equity value as reported in its financial statements. The book value figure is typically viewed in relation to the company's stock value (market capitalization) and is determined by taking the total value of a company's assets and subtracting any of the liabilities the company still owes.