Book value per share ratio example

The book value per share is a market value ratio that weighs stockholders equity against shares outstanding. He is asked to calculate the book value per share of a stock and check if the stock trades at a fair value. Book value per share formula how to calculate bvps. Per share example book value per share analysis book value per share. It is calculated by dividing the current closing price of. The book value per share bvps is calculated by taking the ratio of equity available to common stockholders against the number of shares outstanding. If the market value per share is lower than the book value per share, then the stock price may be undervalued. Book value per share bvps takes the ratio of a firms common equity. Book value per share financial ratio the balance small business. This example is referred to as price to book value pb, in which book value per share is used in the denominator.

Thus, this measure is a possible indicator of the value of a companys stock. Book value per share bvps is a ratio used to compare a firms common shareholders equity to the number of shares outstanding. The book value is used as an indicator of the value of a companys stock, and it can be used to predict the possible market price of a share at a given time in the future. Book value per share formula, calculator and example. Price to book value ratio price per share book value per share. Pricetobook ratio pb ratio definition investopedia.

The book value per share is calculated using historical costs, but the market value per share is a forwardlooking metric that takes into account a companys earning power in the future. Book value per common share bvps definition investopedia. A shortterm event, such as a stock buyback, can skew periodending values. Please note that book value shareholders equity net worth. Book value per share formula with calculator financial formulas. The pricetobook ratio pb ratio is a ratio used to compare a stocks market value to its book value. Book value per share bvps overview, formula, example.

The first part of our calculation would be to find out the total shareholders equity available to common. If this ratio of the stock is 5x, this implies that the current market price of the share is trading at 5 times the book value as obtained from the balance sheet. Example of how to use book value of equity per share. What is book value per share and how can it help you in. Book value per share is a reliable barometer of a stocks potential value. Its important to use the average number of outstanding shares in this calculation.

If the value of bvps exceeds the market value per share. In other words, the value of all shares divided by the number of shares issued. Book value per common share bvps derives a companys book value on a. 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. Depreciation is the reduction of an items value over time. Book value of an asset refers to the value of an asset when depreciation is accounted for. It is the amount that shareholders would receive if the company dissolves, realizes cash equal to the book. Book value per share bvps is a measure of value of a companys common.