What Does Book Value Per Share Tell You
For example a company that is currently trading for 20 but has a book value of 10 is selling at twice its equity.
What does book value per share tell you. The book value of equity is an accounting measure based on the historic cost principle and reflects past issuances of equity augmented by any profits or losses and reduced by dividends and share. The book value of a company stripped to basics is the value of the company the stockholders will own if the firm s. If a p b ratio is less than one the shares are selling for less than the.
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 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. Book value per share is a fairly conservative way to measure a stock s value.
The book value per share may be used by some investors to determine the equity in a company relative to the market value of the company which is the price of its stock. Comparing bvps to a stock s market price could help value investors find opportunities. If a company s bvps is.
The information needed to calculate bvps is found on a company s balance sheet. What is the book value per share bvps. 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 share is a ratio that compares the net asset value of a company minus preferred equity to the total number of common shares available on the market. The price to book p b ratio is a popular way to compare book and market values and a lower ratio. A simple calculation dividing the company s current stock price by its stated book value per share gives you the p b ratio.
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.