Book Value Per Share Ratio Interpretation

The book value per share is a little more complicated.

Book value per share ratio interpretation. The basics of the p b ratio the p b ratio compares a company s market capitalization or market value to its book value. The book value per share bvps is calculated by taking the ratio of equity available to common stockholders against the number of shares outstanding. Book value per common share or simply book value per share bvps is a method to calculate the per share book value of a company based on common shareholders equity in the company.

When compared to the current market value per share the book value per share can provide information on how a company s stock is valued. Book value of equity per share bvps is the ratio of equity available to common shareholders divided by the number of outstanding shares. Specifically it compares the company s stock price to its book value per.

The book value per share bvps is a ratio that weighs stockholders total equity against the number of shares outstanding. This illustrates that the market. In other words this measures a company s total assets minus its total liabilities on a per share basis.

If book value per share is calculated with just common stock in the denominator then it results in a measure of the amount that a common shareholder would receive upon liquidation of the company. The book value of equity in turn is the value of a company s assets. If the share price is 5 then the p b ratio would be 2x 5 2 50.

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. Book value per share bvps is a measure of value of a company s common share based on book value of the shareholders equity of the company. The market price per share is simply the current stock price that the company is being traded at on the open market.

The price to book ratio formula is calculated by dividing the market price per share by 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 outstanding. Be sure to use the average number of shares since the period end amount may incorporate a recent stock buyback or issuance which will skew the.