Price to Book Value Analysis
Price to Sales Ratio Analysis
Book Value of Equity Per Share (BVPS) Definition
Book Value of Equity per Share (BVPS) is a way to calculate the ratio of a company’s Stakeholder equity (as stated in the balance sheet) to the number of shares outstanding. Investors commonly use BVPS to determine if a stock price is under or overvalued by looking at the company’s current state.
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Book Value vs Market Value
Investors use both Book Value and Market Value to build strong portfolios. The market price of a stock provides hints to the company’s future growth and financial stability. The book value reveals the current state of a company calculated by its balance sheet. Using both values can assist you in determining whether a stock is valued correctly, thereby helping you invest your money wisely. For example, a company’s BVPS is $4 and the market value is $10. In this case, it does not necessarily mean that the stock is overvalued. However, it might mean that the company’s assets have a high earning power or potential. In comparison, it doesn’t necessarily mean it is an undervalued stock if a company’s BVPS is $4 and the market value is $2. Instead, it might mean that the financial market has lost confidence in the company’s ability to generate future profits.
Book Value of Equity Per Share Formula
Calculate the BVPS of a company by dividing total stakeholder equity (excluding preferred shares) by total shares outstanding. Refer to the following formula to calculate BVPS:
BVPS = Value of Common Equity / # of Shares Outstanding
Example of Book Value of Equity Per Share (BVPS)
For example, ABC & Co. has $30,000,000 of stockholder’s equity, $7,000,000 of preferred stock, and an average of 5,000,000 shares outstanding during the period measured. Calculate BVPS using the following formula:
$30,000,000 Stockholder’s Equity – $7,000,000 Preferred Stock ÷ 5,000,000 Average Shares Outstanding
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