What Is Book Value Per Share (BVPS)?

Book value per share (BVPS) measures a company's total assets minus its liabilities and then divides the total by the number of shares outstanding.

Theoretically, BVPS is the amount that shareholders would be owed if the firm went out of business, sold all of its tangib🌱le assets, and paid all of its debts.

Stock analysts use BVPS to judge whether a stock is underpriced o෴r oveꦓrpriced based on a comparison of its current market value to its book value.

Measuring Book Value Per Share (BVPS)

The 澳洲幸运5官方开奖结果体彩网:book value per share (BVPS) metric helps investors gauge whether a stock price is undervalued by comparing it to the firm’s market value per share. BVPS is what shareholders receive if the firm is 澳洲幸运5官方开奖结果体彩网:liquidated,🎐 all tangible assets are ꦡsold, and all liabilities are paid.

$BVPS\ =\ \frac{\text{Total Equity}\ -\ \text{Preferred Equity}}{\text{Total Shares Outstanding}}$BVPS = Total Shares OutstandingTotal Equity − Preferred Equity​

A company’s stock is considered undervalued when BVPS is higher than a company’s 澳洲幸运5官方开奖结果体彩网:market value or current stock price. If the BVPS increases, the stock is perceived as more valuable, and the price shoul☂d incr💞ease.

If a company’s share price falls below its BVPS, a corporate raider could make a risk-free profit by buying the company and liquidating it. If book value is negative, where a company’s liabilities exceed its assets, this is known as a 澳洲幸运5官方开奖结果体彩网:balance sheet insolvency.

Example of BVPS

Assume that XYZ Manufacturing has a common equity balance of $10 million and 1 million shares of common stock are outstanding. This means that the BVPS is ($10 million 🐷/ 1 million shares), or $10 per share. If XYZ can generate higher profits an𝄹d use those profits to buy assets or reduce liabilities, then the firm’s common equity increases.

If the company generates $500,000 in earnings and uses $200,000 of the profits to buy assets, then its common equity increases along with BVPS. If XYZ uses $300,000 of its earn♈ings to reduce liabilities, then common equity also increases.ඣ

Another way to increase BVPS is for a company to 澳洲幸运5官方开奖结果体彩网:repurchase common stock from shareholders. Many compani✱es use earnings to buy back shares.

Assume XYZ repurchases 200,000 shares of stock, and 800,000 shares remain outstanding. If commo♏n equity is $10 million, BVPS increases to $12.50 per share.

The Bottom Line

Book value per share (BVPS) tells investors the🐎 book value of a firm on a per-share basis. Investors use BVPS to gauge whether a stock price is undervalu🦩ed by comparing it to the firm’s market value per share.

Book value refers🥃 to a firm’s net asset value (NAV), or its total assets minus its total liabilities.