The book value of a company is the difference between that company’s total assets and total liabilities, and not its share price in the market.
In this post
Book value is the net value of a firm’s assets found on its balance sheet, and it is roughly equal to the total amount all shareholders would get if they liquidated the company. Market value is the company’s worth based on the total value of its outstanding shares in the market, which is its market capitalization.
Book Value of Equity Per Share Formula
Often called shareholder’s equity, the “book value of equity” is an accrual accounting-based profit measure. Just to review, the book value of equity is defined as the value of a company’s assets as if all of its assets were liquidated to pay off its liabilities.
The book value per share (BVPS) is calculated by taking the ratio of equity available to common stockholders against the number of shares outstanding. 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.
Count up all of the company’s outstanding shares. Divide the company’s book value by the total number of shares.
If the book value is higher than the share’s market price, it means the company’s assets are being traded at a lower price than what they are worth. “It gives a huge margin of safety if a company is trading at discount to the book value,” says Shah.
When the market value is less than book value, the market doesn’t believe the company is worth the value on its books. A higher market value than book value means the market is assigning a high value to the company due to expected earnings increases.
What is book value in simple words?
Book value is the accounting value of the company’s assets less all claims senior to common equity (such as the company’s liabilities). The term book value derives from the accounting practice of recording asset value at the original historical cost in the books.
How is BVPS calculated?
The BVPS is calculated by dividing a company’s common equity value by its total number of shares outstanding: For example, assume company ABC’s value of common equity is $100 million, and it has shares outstanding of 10 million. Therefore, its BVPS is $10 ($100 million/10 million).
If the BVPS is higher than the market value per share, the company’s stock may be undervalued. The book value is generally used as an indicator of a stock’s value and to predict the possible market price of a share at a given time in the future.
An important measure of value is the book value per share-total assets minus intangible assets and liabilities divided by the number of outstanding shares. If the price-tobook value per share is less than one, it means the stock is trading below its book value.
How do you calculate price to book value?
It’s calculated by dividing the company’s stock price per share by its book value per share (BVPS). An asset’s book value is equal to its carrying value on the balance sheet, and companies calculate it by netting the asset against its accumulated depreciation.
Why is book value important?
Book value is considered important in terms of valuation because it represents a fair and accurate picture of a company’s worth. The figure is determined using historical company data and isn’t typically a subjective figure. It means that investors and market analysts get a reasonable idea of the company’s worth.
How do you interpret book value?
The book value of a company is the difference in value between that company’s total assets and total liabilities on its balance sheet. Value investors use the price-to-book (P/B) ratio to compare a firm’s market capitalization to its book value to identify potentially overvalued and undervalued stocks.
What causes book value to increase?
The sale of shares/units by the business increases the total book value. Book/sh will increase if the additional shares are issued at a price higher than the pre-existing book/sh. The purchase of its own shares by the business will decrease total book value.
Is book value a good indicator?
Yes, book value is a good indicator of a company’s valuation. When investors invest in a company, they are owners of its assets.
Top Companies in India by Price to Book Value – BSE
| Sr | Company Name | PBV Ratio |
|---|---|---|
| 1 | MRF Add to Watchlist Add to Portfolio | 2.61 |
| 2 | Shree Cements Add to Watchlist Add to Portfolio | 4.38 |
| 3 | Bosch Add to Watchlist Add to Portfolio | 4.71 |
| 4 | Jain Irrigation Add to Watchlist Add to Portfolio | 0.02 |
Which stock has highest book value?
high Book value
| S.No. | Name | B.V. Rs. |
|---|---|---|
| 1. | Standard Inds. | 22.00 |
| 2. | Hinduja Global | 1868.26 |
| 3. | Suumaya Indust. | 244.06 |
| 4. | Oscar Global | 10.67 |