Book value per share compares the amount of stockholders equity to the number of shares outstanding. Book value per share financial definition of book value per share. Book value of an asset refers to the value of an asset when depreciation is accounted for. Thus, this measure is a possible indicator of the value of a companys stock. Therefore, it makes sense to use book value per share as a measure of the value of the company to the shareholders. Book value per common share is a measure used by owners of common shares in a firm to determine the level of safety associated with each individual share after all debts are paid accordingly.
Jan 30, 2018 book value per share bvps is a measure of value of a companys common share based on book value of the shareholders equity of the company. Book value per share is a widely used stock evaluation measure. The book value per share is a market value ratio that weighs stockholders equity against shares outstanding. Book value per share formula with calculator financial formulas. The book value of assets and shares are the value of these items in a companys financial records. This means the corporation could buy back the shares at certain. Book value per share bvps overview, formula, example. Book value is the net asset value of the company according to standard accounting practice gaap, audited. What remains is the equity that is distributable to its shareholders. In other words, divide the applicable equity by the number of shares. This is a financial measure of a per share assessment of the minimum value of a companys equity. While stock prices change constantly when markets are open, the nav of a fund is calculated at the end of business each day, to reflect the price changes in the.
The simplest explanation i can give is that it tells potential investors how much their shares would be worth in the event the company in question goes out of business. It is calculated by the company as shareholders equity book value divided by the number of shares outstanding. Depreciation is the reduction of an items value over time. Book value per share financial ratio the balance small business. In this scenario, the socalled price to book pb ratio is applied with a banks stock price compared to equity book value per share. Or also, the business model is perhaps capital light. Stocks trading below their book value can give decent returns.
Dividing this by the number of shares will give the book value per share. What does benjamin grahams price to book value of the stock. Find out all the key statistics for cabot corporation cbt, including valuation measures, fiscal year financial statistics, trading record, share statistics and more. This compares a stocks book value to its market value. Mar 28, 2017 book value per share equals total assets minus total liabilities divided by total outstanding shares. For example if the pb ratio is 4 it means that for every rs 1 in books, the price paid by the market is rs 4. If the market value per share is lower than the book value per share, then the stock price may be undervalued. It expresses the minimum value that would be available. The formulas and examples for calculating book value per share with and without preferred stock are given below. This calculation is often modified to exclude intangible assets, because they are not readily convertible to cash, in which case the calculation is called the tangible book value per share. The formula for book value per share is to subtract preferred stock from stockholders equity, and divide by the average number of shares. The book value per share is the value of the companys stock on the companys stockholders equity section.
After such modification we get the following widely used formula to calculate book value per share. For example, to determine a companys book value, a value analyst would. A shortterm event, such as a stock buyback, can skew periodending values. The book value per share is the amount of the assets that will go to common equity in the event of liquidation. During the past 3 years, the average book value per share growth rate was. Sometimes when companies aggressively buy back their shares, the book value can become negative. Book value is a key measure that investors use to gauge a stocks valuation. Book value per share is the gaap number number of shares outstanding. If company has issued common as well as preferred stock.
It is the amount that shareholders would receive if the company dissolves, realizes cash equal to the. Stocks trading below their book value can give decent. The book value of a company is the total value of the companys. Book value per share is a good measure to value bank stocks. During the past 12 months, costco wholesales average book value per share growth rate was 18. In this scenario, the socalled priceto book pb ratio is applied with a banks stock price compared to equity book value per share. Aug 17, 2019 the book value per share is a market value ratio that weighs stockholders equity against shares outstanding. Strictly speaking, the higher the book value, the more the share is worth. Carter mcbride started writing in 2007 with cmbas ip section. Book value per share bvps total stockholders equity preferred equity number of shares of common stock outstanding step 1. Book value per share formula, calculator and example. Once they purchase a stock, value investors seek to ride the price upward as the.
At the time walmarts 10k for 2012 came out, the stock was trading in. What is book value per share and how can it help you in. For the most part the book value bv really doesnt tell us a whole lot. How to calculate the book value of a preferred stock. It is equal to a firms total assets minus its total liabilities, which is the net asset value or book value of the company as a whole. Book value per common share bvps definition investopedia. Theoretically, the company can sell all its assets and pay off all its debt and liabilities. Par value of stock what is par value of common stock. Enterprise value, or firm value, market value, market capitalization, and other methods may be used in different circumstances or compared to one another for contrast. Calculating earnings per share gives investors an estimate of what the company should be worth.
But value investors tend to find book value a good starting point to investigating a company, especially if the pershare stock price crosses below that companys book value. Dec 29, 2015 the simplest explanation i can give is that it tells potential investors how much their shares would be worth in the event the company in question goes out of business. How to figure the book value of bank stock finance zacks. Should the company decide to dissolve, the book value per common share indicates the dollar value remaining for common shareholders after all assets are. Divide the market value per share by the book value per share to calculate market to book ratio. So higher book value means the shares have more liquidation value. A low pb ratio is commonly taken to indicate value whilst a high pb ratio is taken to indicate a growth stock. The trailing one and threeyear annualized growth rate per share in a companys shareholders equity, or book value. May 22, 2019 book value per share compares the amount of stockholders equity to the number of shares outstanding. Price to book value is the ratio between market capitalization and book value. Price to book value is a valuation ratio that is measured by stock price book value per share.
Computing the book value of preferred stock is slightly different than computing common stocks value because preferred shares include options that commons shares dont. Book value per share bvps is the minimum cash value of a company and its equity. Equity per share represents the netasset value backing up each. The net asset value nav is the calculation that determines the value of a share in a fund of multiple securities, such as a mutual fund, hedge fund, or exchangetraded fund etf. The book value of a company divided by the number of shares outstanding. One way to look at book value per share is to consider what will happen if the company ceases all operations today. Apr 18, 2018 definition of book value book value as the name suggests, is the value of the company as per its books i. The number of dividends paid to stockholders versus the companys total net income.
Costco wholesales book value per share for the quarter that ended in feb. For example, enterprise value would look at the market value of the companys equity. Its important to use the average number of outstanding shares in this calculation. For example, brown, lajbcygier, and li 2008 used generalized style classification similarities in stock return history to classify companies with negative book equity into famafrench value. Find the latest book value per share for nacco industries, inc. Mostly, the book value is calculated for common stock only. This is a percentage of the current price of a share. It relates the market price of a stock to its book value.
What does benjamin grahams price to book value of the. Sep 30, 2011 but value investors tend to find book value a good starting point to investigating a company, especially if the per share stock price crosses below that companys book value. Find the latest book value per share for the trade desk inc. How do i interpret pricebook and book value per share on. It is the value that companys shareholders would receive after company liquidate all its assets and satisfy all its shortterm and longterm liabilities. The presence of preferred stock in the total stockholders equity, however, has a significant impact on the calculation. Book value per share financial definition of book value. Is it better to buy a company with a lower book value. Calculate book value per share from the following stockholders equity section of a company.
For a more realworld example of book value per share in action, lets turn to, which offers this scenario. In case the company does encounter such an event, all assets are liquidated in. During the past 5 years, the average book value per share growth rate was. View book value per share for c access over 100 stock metrics like beta, evebitda, pe10, free cash flow yield, kz index and cash conversion cycle. Book value per share equals total assets minus total liabilities divided by total outstanding shares. Keep in mind that the book value per share will not be the same as the market value per share.
The book value per share formula is used to calculate the per share value of a company based on its equity available to common shareholders. Bv is considered to be the accounting value of each share, which may be drastically different than what the market is valuing the stock at. Book value per share, quasireorganization flashcards. Book value per share is just one of the methods for comparison in valuing of a company. Priceearnings ratio is a good tool for comparing the value of competing companies. He is asked to calculate the book value per share of a stock and check if the stock trades at a fair value. What does book value per share explain about the business. During the past 5 years, the average book value per share growth rate was 4. Oct 20, 2018 book value per share is a good measure to value bank stocks. The book value per preferred share is calculated by dividing the call price or par valueplus the cumulative dividends in arrears by the number of outstanding preferred shares.
Growth rate is how much a companys equity is growing over the year. A company can also increase the book value per share by using the generated profits to buy more assets or reduce liabilities. Book value is a useful tool for evaluating the market value per share. When the purchase price per share is less than book value per share, then the denominator of book value per share decreases by a greater percentage than does the numerator, and book value per share increases. Not foolproof as a standalone valuation metric, bank book.
When compared with the market value, book value can indicate whether a stock is overvalued or undervalued. The book value of a company is the difference between that companys total assets and total liabilities, and not its share price in the market. These values can be found in the companys balance sheet and accounting tools such as journals and ledgers. Book value per share definition the book value per share is the value each share would be worth if the company were to be liquidated, all the bills paid, and the assets distributed. This interpretation is simplistic and deeper analysis is recommended. Book value per common share is a measure used by owners of common shares in a firm to determine the level of safety associated with each share after all debts are paid accordingly. The company is not a dead company and it is growing.
The rest of the amount would be treated as additional paidin capital. Ps can also be determined by dividing the price of a stock per share by pershare revenue. If the company shares are priced much higher than the book value per share, than the stock price might be too high for purchase. The book value per share bvps is calculated by taking the ratio of equity available to common stockholders against the number of shares outstanding. It is the amount that shareholders would receive if the company dissolves, realizes cash equal to the book value of its assets and pays liabilities at their book value. For example, many preferred shares are callable at a specific price. Book value per share of common stock explanation, formula. In other words, the value of all shares divided by the number of shares issued. Pb ratio market price per share book value per share the market price divided by book value shows the market value of every rupee of asset that the company has. Relating book value per share to market price a favoured tool of value investors is the pb ratio. During the past 3 years, the average book value per share growth rate was 7. The book value is essentially the tangible accounting value of a firm compared to the market value that is shown. In this scenario, the socalled pricetobook pb ratio is applied with a banks stock.
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