Book Value Per Share Higher Or Lower Better

When book value per share is high.

Book value per share higher or lower better. If the bvps is 4x the cmpps then the owner board of the co. Book value is not very useful in the latter case but for companies with solid assets it s often the no 1 figure for investors. Let me explain why.

In other words if the graham number the present value is higher than the market price the stock is undervalued and vice versa. It is not advisable to buy a share where book value per share is 4 times greater than the current market price per share. There may be reasons to look for low book value such as pursuing investments that the market.

Strictly speaking the higher the book value the more the share is worth. More specifically this value is determined by relating the original value of a firm s common stock adjusted for any outflow dividends and stock buybacks and inflow retained earnings modifiers to the amount of shares outstanding. A simple calculation dividing the company s current stock price by.

The formula is known as the graham number and it represents the maximum price that you should pay for a stock according to its earnings per share eps and book value per share bvps. Traditionally any value under 1 0 is considered a good p b value indicating a. The book value per shareis the amount of the assets that will go to common equity in the event of liquidation.

However investors must be aware that conventional calculation of book value does not include intangible assets such as goodwill intellectual property trademarks or brands and may not be an appropriate measure for many firms. So higher book value means the shares have more liquidation value. If the bvps is less than the price of the stock then that tells an investor that the stock could be overvalued it costs more than the assets it s entitled to.

This is because in all probability there s an error in the report you are using for book value. Apple stock closed on june 29 2018 at 185 11 per share. The price to book p b ratio has been favored by value investors for decades and is widely used by market analysts.