What is Book Value Per Share? Guide With Examples

For asset-heavy industries, BVPS might provide a reasonable estimate of value. However, for sectors like technology and pharmaceuticals, where intellectual property and ongoing research and development are crucial, BVPS can be misleading. She holds a Bachelor of Science in Finance degree from Bridgewater State University and helps develop content strategies.

Managing Assets and Liabilities

It may be that a company has equipment that gets depreciated rapidly, but the book value is overstated. In contrast, a company may have an asset that does not depreciate rapidly, like oil and property, but it has been overlooked and has understated book value. When deciding to invest in the market, it is important to know the actual share value of a company and compare it with market value and trends. This helps you better create a picture of the investment and how lucrative it will be for you in the long run. Book value per share tells you the true status of the shares of a company with respect to their price on the market. The book value meaning or the origination of the name comes from the accounting lingo where the balance sheet of a company was called ‘books’.

DISCLOSURES UNDER THE PROVISIONS OF SEBI (RESEARCH ANALYSTS) REGULATIONS 2014 (REGULATIONS)

Kindly note that, this article does not constitute an offer or solicitation for the purchase or sale of any financial instrument. Value investors use BVPS to identify stocks that are trading below their intrinsic value, indicating potential undervaluation. BVPS is typically calculated and published periodically, such as quarterly married filing separate status on your 2020 or 2021 tax return or annually. This infrequency means that BVPS may not always reflect the most up-to-date value of a company’s assets and liabilities. If a company has a book value per share that’s higher than its market value per share, it’s an undervalued stock.

Top Adani Group Stocks in India (

• Another use the BVPS can be put to is for calculating Return on Equity (ROE) on a per-share basis.
• She holds a Bachelor of Science in Finance degree from Bridgewater State University and helps develop content strategies.
• Alongside her accounting practice, Sandra is a Money and Life Coach for women in business.
• The issue opens on June 25, 2025, and aims to raise ₹12,500 crore through a combination of fresh issue and offer for sale.

However, you would need to do some more research before making a final decision. Stock analysts use BVPS to judge whether a stock is underpriced or overpriced based on a comparison of its current market value to its book value. Get to know where the market bulls are investing to identify the right stocks. Insurance is not a Exchange traded product and the Member is just acting as distributor.

Price Band & Structure:

It represents the net asset value of a company’s shareholders’ equity, and it’s calculated by dividing the total shareholders’ equity by the total number of outstanding shares. In addition, stocks below book value might signal an undervalued asset, presenting an opportunity to acquire shares at a discounted rate. However, while it serves as a fundamental assessment, investors must consider other factors, such as future earnings potential, industry trends, and overall market conditions, to make well-informed investment decisions. These articles have been prepared by 5paisa and is not for any type of circulation. 5paisa shall not be responsible for any unauthorized circulation, reproduction or distribution of this material or contents thereof to any unintended recipient. Kindly note that this page of blog/articles does not constitute an offer or solicitation for the purchase or sale of any financial instrument or as an official confirmation of any transaction.

These shares are exclusive of treasury shares which still rest with the company or comprise all the buybacks that the company initiates. In simpler words, the total number of shares of a company that are currently circulating in the market are termed outstanding shares. Book value per share differs from the market value per share in that it displays the actual share value of a company, instead of the one on stock market indices. This is the primary reason why investors prefer to look at the book value per share to avoid investing in undervalued or overvalued stock. Primarily, BVPS mirrors the current net asset value of a company and not its future earnings potential.

This all-in-one solution allows you to track invoices, expenses, and view all your financial documents from one central location. Assuming Microsoft holds no preferred shares – a typical scenario, we need not make any adjustments. Taking the above-mentioned example of the same company, ABC Enterprises, let’s calculate its P/B ratio. Remember, even if a company has a high book value per share, there’s no guarantee that it will be a successful investment.

The first part of our calculation would be to find out the total shareholders’ equity available to common shareholders and preferred stockholders. ROE is calculated by dividing the company’s net income by the shareholders’ equity. Other than this, BVPS is also used to interpret metrics like Earnings Per Share (EPS), which helps measure the net income of the company per its outstanding share. In conclusion, book value is a fundamental metric that provides valuable insights into a company’s net asset value per share. Book value per share relates to shareholders’ equity divided by the number of common shares.

BVPS is particularly helpful in gauging the asset value of companies working in sectors with a lot of physical assets. The book value meaning in share market, more commonly known as net book value or carrying value, is a financial metric that represents the value of an asset on a company’s balance sheet. In other words, it is calculated by taking the original cost of the asset and subtracting the accumulated depreciation or amortization up to the current date. Consequently, it can be conceptualized as the net asset value(NAV) of a company, obtained by subtracting its intangible assets and liabilities from the total assets. For instance, if a vehicle costs ₹1,00,000 and its accumulated depreciation amount is Rs. 50,000, then, the book value in the market price, and book value of the stock market of this vehicle will be Rs. 50,000. Conversely, the stock market’s supply and demand dynamics, closely mirrored by the bid ask spread, determine the market value per share; it reflects the current trading price of a company’s shares.

The answer is yes because the company can be punished/pushed unfairly by the market due to stated book value that may not represent the actual value of its assets. It may be a value trap rather than a value opportunity as companies’ assets can be treated differently in different industries. An ideal or good P/B ratio is below 1, indicating a robust undervalued company. The P/B ratio, alternatively referred to as the price-equity ratio, is calculated based on the value of a company. Nevertheless, investors should be aware that relying solely on BVPS for analysis may not yield promising results. Instead, it should be utilized in combination with other metrics such as Discounted Cash Flow (DCF) and Price-to-Earnings Ratio (PE) to form a more comprehensive and reliable assessment of an organization’s potential.

• However, this is possible when the company reinvests the increased earnings into new assets or into paying down liabilities.
• It’s a measure of what shareholders would theoretically get if they sold all of the assets of the company and paid off all of its liabilities.
• There are three key components that investors need to know to calculate the book value per share accurately.
• Sundaram Finance board approves acquisition of a 4.99% stake in India Motor Parts & Accessories Ltd, taking its total shareholding to 24.99% by June 2026.
• Recently, In the unlisted market, HDB shares were being quoted at ₹1,000–₹1,300 — levels that represented a 5x–6x P/B.

It does not directly denote upcoming profitability; however, it can offer glimpses into financial stability and capital structure – factors that indirectly sway a company’s profit-generating capacity. The term “Average Outstanding Shares” refers to the average issued and outstanding shares of a company over a specific period. This means that the market price of the company’s shares is 1.5 times higher than its book value per share. Investors can use this ratio to assess whether the stock is trading at a premium (P/B ratio above 1) or a discount (P/B ratio below 1) relative to its BVPS. As previously stated, it represents the contrast between a company’s total assets and liabilities, as recorded on its balance sheet.

In order to improve the book value per share of your company, put away a portion of your profits into either acquiring more assets or into squaring away liabilities quickly. This ought to bring the book value per share up, while keeping the number of shares outstanding at the same number for the said period. In this example, we have considered two main sections of the balance sheet – Assets and Liabilities. The total assets for ABC Ltd amount to Rs. 77,50,000, while the total liabilities amount to Rs. 32,00,000.

Book value indicates the difference between the total assets and the total liabilities, and when the formula for book value per share is to divide this book value by the number of common shares. Book value per share (BVPS) measures a company’s total assets minus its liabilities and then divides the total by the number of shares outstanding. So, to make it simpler, the market value per share or MVPS is the price of a single stock of the company being traded publicly, divided by the total number of outstanding shares. MVPS is driven by the market’s supply and demand and keeps changing unlike BVPS, which is fixed. Book value per share is an important metric that investors use to evaluate the value of stocks.

Assets encompass both current and fixed assets, while liabilities comprise both current liabilities and non-current liabilities. To sum up, book value per share remains an important indicator of a company’s value. While it may not offer a complete picture on its own, when combined with metrics like market price and earnings, it can yield valuable insights. This is why calculating book value per share and using the book value per share ratio correctly is essential for gaining a renewed perspective on valuation.