What is book value per share (BVPS)?
– Book value per share (BVPS) is a per-share measure of a company’s net accounting value. It represents the portion of a firm’s net assets — after liabilities and senior claims are removed — attributable to each common share on the balance sheet.
Formula
– BVPS = (Total shareholders’ equity − Preferred equity) / Total shares outstanding
– “Total shareholders’ equity” = total assets − total liabilities, per the balance sheet.
– Preferred equity is subtracted because preferred shareholders have a senior claim on assets.
– “Total shares outstanding” generally means the weighted average number of common shares outstanding during the reporting period.
What the components mean (brief definitions)
– Shareholders’ equity: the residual interest in assets after liabilities are paid.
– Preferred equity: capital in the form of preferred shares that ranks ahead of common stock for claims on assets/dividends.
– Shares outstanding: the number of common shares currently owned by investors (use weighted average for the period).
– Book value (net asset value): assets minus liabilities recorded at historical/carrying amounts on the balance sheet.
Step-by-step checklist: how to calculate BVPS from financial statements
1. Open the company’s latest balance sheet.
2. Locate “total shareholders’ equity” (or “total stockholders’ equity”).
3. Identify any preferred stock value and subtract it from total equity.
4. Obtain the weighted average common shares outstanding from the income statement footnotes or the statement of changes in equity.
5. Divide the adjusted equity figure (step 3) by the shares outstanding (step 4).
6. Note assumptions: carrying values use historical costs; you may need to adjust for large impairments, intangible write-offs, or recent buybacks.
Worked numeric example
– Starting data: common equity (total shareholders’ equity after removing preferred) = $10,000,000; common shares outstanding = 1,000,000.
– Initial BVPS = $10,000,000 / 1,000,000 = $10.00 per share.
– Scenario A (earnings retained and used):
– Company earns $500,000 and uses $200,000 to buy assets (increases assets and equity) and $300,000 to pay down liabilities (reduces liabilities and increases equity).
– New common equity = $10,000,000 + $500,000 = $10,500,000 (assuming entire earnings are retained).
– New BVPS = $10,500,000 / 1,000,000 = $10.50 per share.
– Scenario B (share repurchase):
– Company repurchases 200,000 shares; common equity remains $10,000,000, shares outstanding fall to 800,000.
– New BVPS = $10,000,000 / 800,000 = $12.50 per share.
– Note: repurchases raise BVPS if equity is unchanged.
What BVPS tells investors (and its limits)
– Useful signal: BVPS approximates the per-share accounting value of a company’s net assets. Comparing BVPS with the market price per share (the stock’s current market value) yields the price-to-book (P/B) relationship: Price / BVPS.
– If market price < BVPS (P/B assets) signals balance sheet insolvency on a paper basis, but may not represent actual liquidation proceeds.
How companies can increase BVPS
– Grow retained earnings: generate profits and retain (not fully distribute as dividends); use retained earnings to acquire assets or pay down debt — both actions raise shareholders’ equity.
– Reduce shares outstanding: buy back common stock. With the same equity, fewer shares increase BVPS.
– Improve asset quality or write-ups (rare under conservative accounting): asset revalu
ations (rare under conservative accounting) — reversing impairments or recognizing a revaluation gain (where allowed) increases recorded assets and therefore shareholders’ equity, raising BVPS. Note this is uncommon in US GAAP for most asset classes and often subject to strict rules.
How to calculate book value per share (BVPS)
– Formula (common shares): BVPS = Common shareholders’ equity / Weighted-average common shares outstanding
– Common shareholders’ equity = Total shareholders’ equity − Preferred equity (if any)
– Weighted-average shares outstanding accounts for share issuances/buybacks during the period; if not available, use basic shares outstanding from the balance sheet for a rough estimate.
– Tangible BVPS (excludes intangible assets): Tangible BVPS = (Total shareholders’ equity − Goodwill − Intangible assets) / Shares outstanding
Worked numeric example
1) Start with the balance-sheet figures:
– Total assets = $1,200,000
– Total liabilities = $700,000
– Total shareholders’ equity = $1,200,000 − $700,000 = $500,000
– Preferred equity = $50,000
– Common shares outstanding = 100,000 shares
2) Compute common shareholders’ equity:
– Common equity = $500,000 − $50,000 = $450,000
3) Compute BVPS:
– BVPS = $450,000 / 100,000 = $4.50 per share
4) Tangible BVPS (if goodwill = $30,000 and other intangibles = $20,000):
– Tangible equity = $450,000 − $30,000 − $20,000 = $400,000
– Tangible BVPS = $400,000 / 100,000 = $4.00 per share
Using BVPS in analysis — practical checklist
– Compare like with like: restrict comparisons to the same industry (asset-heavy vs asset-light firms behave differently).
– Decide which BV measure to use: reported BVPS vs tangible BVPS — choose based on whether intangibles are material.
– Inspect the balance sheet: check for large goodwill, deferred tax assets, or one-time items that distort equity.
– Adjust for preferred stock: use common-equity BVPS when valuing common shares.
– Look at trend and drivers: is BVPS rising from retained earnings, asset revaluations, or share buybacks?
– Combine with market metrics: compute Price-to-Book (P/B) = Market price per share / BVPS, or P/B = Market capitalization / Common shareholders’ equity.
– Use alongside other ratios: ROE (return on equity), P/E (price-to-earnings), and cash-flow metrics give a fuller picture.
Interpreting BVPS and Price-to-Book (P/B)
– Low P/B (below 1) can indicate market expects future earnings decline, or assets are overstated; it is not an automatic buy signal.
– High P/B can reflect strong intangible value (brand, patents) or high expected future returns.
– Compare P/B across peers and over time; note that accounting policies and asset ages affect book values.
Limitations and caveats
– Historical cost accounting: most assets are recorded at historical cost less depreciation, not current fair market value.
– Intangibles and goodwill: they may be large for some firms and are often difficult to value; impairments can cause sudden drops in BVPS.
– Accounting differences: GAAP vs IFRS and company-specific estimates (useful lives, impairment thresholds) affect comparability.
– Negative book value: can signal balance-sheet weakness but doesn’t necessarily mean imminent liquidation — liquidation values differ from accounting book values.
– Cyclical firms: book value may be distorted across cycles; peak asset values in booms and write-downs in busts can swing BVPS.
Quick diagnostics for a BVPS check
1) Pull the latest balance sheet and the notes for goodwill/intangibles and preferred stock.
2) Calculate common equity and BVPS (and tangible BVPS if relevant).
3) Compute P/B using current market price or market cap.
4) Compare BVPS and P/B to peers and historical levels.
5) Read footnotes for large noncash items or accounting changes.
Example interpretation (numeric)
– Company X: BVPS = $10.00, share
price = $6.00. Interpretation steps and numbers:
– Compute price-to-book (P/B): P/B = Market price per share / BVPS = 6.00 / 10.00 = 0.60.
– A P/B of 0.60 means the market is valuing the company at 60% of its accounting book value per share.
– Check tangible book value per share (tangible BVPS). Tangible BVPS removes intangibles and goodwill (nonphysical assets) which are often the most questionable parts of book value. Example assumptions: total common equity = $1,000 million; goodwill + other intangibles = $400 million; common shares outstanding = 100 million.
– Tangible common equity = 1,000 − 400 = $600 million.
– Tangible BVPS = 600 / 100 = $6.00 per share.
– Now compare market price ($6.00) to tangible BVPS ($6.00): market price = tangible BVPS → the market values the company at book value of its tangible assets but discounts goodwill/intangibles.
– Interpretations (numeric):
1. If price BVPS (price = $15): market expects above-book returns on assets (high expected profitability, strong franchises, intangible value not captured on the balance sheet).
Quick checklist: what to do when you find a low P/B or a large gap between BVPS and tangible BVPS
1. Read the notes: check goodwill, impairment reserves, and intangibles schedules.
2. Recompute BVPS excluding preferred stock: Preferred equity belongs to non-common shareholders and should be excluded when computing common BVPS. Formula: BVPS = (Total shareholders’ equity − Preferred equity) / Shares outstanding.
3. Compute tangible BVPS = (Total shareholders’ equity − Goodwill − Other intangibles − Preferred equity) / Shares outstanding.
4. Check recent write‑offs or major acquisitions: large M&A can inflate goodwill.
5. Look at profitability metrics: Return on equity (ROE = Net income / Average shareholders’ equity) and return on tangible equity. Persistently low or negative ROE can justify P/B below 1.
6. Assess leverage and liquidity: high leverage or looming maturities can explain discounts.
7. Consider cyclical effects and timing: look at average BVPS across cycles or normalized earnings.
8. Compare to peers and history: absolute P/B has meaning only in context.
Worked numeric example (concise)
– Company A: Total common equity = $500m; preferred = $50m; goodwill/intangibles = $150m; shares = 50m; market price = $6.00.
– Common equity for BVPS = 500 − 50 = $450m. BVPS = 450 / 50 = $9.00.
– Tangible common equity = 450 − 150 = $300m. Tangible BVPS = 300 / 50 = $6.00.
– P/B = 6 / 9 = 0.67. P/Tangible BVPS = 6 / 6 = 1.00.
– Interpretation: market values tangible assets at book but discounts intangibles; investigate the quality of those intangibles and whether impairments are likely.
Caveats and common pitfalls
– Accounting conventions vary (GAAP vs IFRS, revaluation policies), which affects comparability.
– BVPS is backward‑looking: it reflects historical costs adjusted for accumulated depreciation and impairments, not current replacement value or earning power.
– Off‑balance‑sheet items and contingent liabilities (leases, litigation, guarantees) can materially alter economic book value.
– Negative BVPS does not automatically indicate imminent bankruptcy; it can occur in early‑stage firms or after large write‑downs.
Formulas summary
– BVPS (common) = (Total shareholders’ equity − Preferred equity) / Shares outstanding.
– Tangible BVPS = (Total shareholders’ equity − Preferred equity − Goodwill − Other intangibles) / Shares outstanding.
– P/B ratio = Market price per share / BVPS.
Further reading (reputable sources)
– Investopedia — Book Value Per Share (BVPS): https://www.investopedia.com/terms/b/bvps.asp
– U.S. Securities and Exchange Commission (SEC) — Financial Reporting Manual and company filings: https://www.sec.gov/
– FASB (Financial Accounting Standards Board) — Standards and guidance on goodwill and impairment: https://www.fasb.org/
– Aswath Damodaran (NYU Stern) — Valuation concepts including book vs. market value:
Practical checklist: how to use BVPS in analysis
– Step 1 — Locate the inputs in filings. Find total shareholders’ equity and preferred equity on the consolidated balance sheet or the equity rollforward in the 10‑K/10‑Q. Find goodwill and other intangible assets in the balance sheet and the related notes. Find shares outstanding in the equity section or the EPS note (use the number consistent with the price: basic or diluted).
– Step 2 — Decide which BVPS to calculate. Use common BVPS for broad comparisons; use tangible BVPS when you want to strip intangible accounting assets (goodwill, brands, patents).
– Step 3 — Choose the shares base. Use basic shares for a snapshot; use diluted shares if you want to include the effect of options, warrants, convertibles (this lowers BVPS).
– Step 4 — Choose a market price and timestamp. Use the same date for price and shares if you want a precise P/B (price-to-book) ratio; otherwise note that asynchronous dates introduce mismatch.
– Step 5 — Adjust if needed. Reconcile any one‑off items (recent impairments, large acquisition goodwill, remeasurements) that make book value less representative of ongoing assets.
Worked numeric example (step‑by‑step)
Company example data (from the balance sheet and notes)
– Total shareholders’ equity = $2,000 million
– Preferred equity = $100 million
– Goodwill = $400 million
– Other intangible assets = $100 million
– Shares outstanding = 100 million (basic)
– Market price per share = $30
Calculations
1. Common BVPS = (Total shareholders’ equity − Preferred equity) / Shares
= ($2,000m − $100m) / 100m = $1,900m / 100m = $19.00 per share.
2. Tangible BVPS = (Total shareholders’ equity − Preferred equity − Goodwill − Other intangibles) / Shares
= ($2,000m − $100m − $400m − $100m) / 100m = $1,400m / 100m = $14.00 per share.
3. Price‑to‑book (P/B) = Market price per share / BVPS
P/B (using common BVPS) = $30 / $19 ≈ 1.58.
P/B (using tangible BVPS) = $30 / $14 ≈ 2.14.
Interpretation (educational)
– A P/B > 1 means the market values the company above reported book value. That premium may reflect expected future earnings, intangible value not capitalized on the balance sheet, or market optimism
A P/B < 1 — what it can mean
– A price‑to‑book (P/B) ratio below 1 often signals the market values the company at less than its reported book value. Possible explanations:
– Market expects future earnings to decline (weak fundamentals, industry disruption).
– Company carries high levels of nonperforming or obsolete assets not yet written down.
– Book value includes intangible or slow‑moving assets that the market discounts.
– A liquidation scenario: market prices in a distressed or bankruptcy outcome.
– Important caveat: P/B < 1 is not an automatic “bargain” signal. It can indicate undervaluation or legitimately poor prospects. Always investigate underlying causes.
When BVPS is most useful (and when it isn’t)
– Most useful:
– Financial firms (banks, insurance): assets and liabilities are marked closer to market values and book equity reflects ongoing earning capacity. BVPS and P/B are standard screening tools here.
– Capital‑intensive, mature companies where balance sheet assets are economically meaningful (utilities, real estate).
– Less useful:
– High‑growth, knowledge‑based, or tech firms: value often sits in unrecorded intangible assets (brand, human capital, network effects) and in future earnings, so book value understates economic value.
– Firms with heavy off‑balance‑sheet assets or complex accounting treatments.
Practical checklist to compute and interpret BVPS (step‑by‑step)
1. Start with total shareholders’ equity from the latest balance sheet.
2. Subtract preferred equity if computing common BVPS.
3. Optionally subtract goodwill and other identifiable intangibles to calculate tangible BVPS.
4. Decide on share count: use diluted shares if you want a conservative per‑share measure (see step 5).
5. Adjust shares outstanding for dilutive securities:
– Add converted shares from convertible bonds/preferred, exercised options, and restricted stock units using the treasury‑stock method where appropriate.
6. Compute BVPS = Adjusted book equity / Adjusted shares outstanding.
7. Compute P/B = Market price per share / BVPS.
8. Compare P/B to industry peers, historical averages, and check trend over time.
9. Investigate discrepancies by reviewing footnotes: asset write‑downs, impairment charges, off‑balance‑sheet items, or major acquisitions.
Worked numeric example — bank (illustrative)
Assumptions (rounded):
– Bank’s total shareholders’ equity = $5,000m
– Preferred equity = $200m
– Goodwill = $50m (minor for banks here)
– Diluted shares outstanding = 250m
Step A — Common BVPS:
– Common book equity = $5,000m − $200m = $4,800m
– BVPS = $4,800m / 250m = $19.20 per share
Step B — Tangible BVPS (if you want to exclude goodwill):
– Tangible book equity = $4,800m − $50m = $4,750m
– Tangible BVPS = $4,750m / 250m = $19.00 per share
Step C — Interpretation:
– If the bank’s market price is $28, then P/B (common) = 28 / 19.20 ≈ 1.46 — market values it above book, perhaps due to expected future profitability.
– If P/B book).
– Tangible P/B = 28 / 14.80 ≈ 1.89 (market premium is larger when intangibles are excluded).
Checklist before relying on BVPS
– Confirm which equity line you used (total vs. common shareholders’ equity). Subtract preferred equity if you want value per common share.
– Check for off‑balance‑sheet items (leases, guarantees, significant derivatives) and adjust if material.
– Review accounting policies (e.g., impairment charges, revaluations, revenue recognition) that change book values between firms or periods.
– Adjust for corporate actions: recent buybacks, new share issuance, conversions of convertibles, or planned asset sales.
– For banks and insurers, inspect loan‑loss reserves, nonperforming assets, regulatory capital, and unrealized securities gains/losses.
– Decide basic vs. diluted shares: use diluted count if conversion is likely and would meaningfully