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Book Value of Equity Per Share (BVPS)

See also:
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

= $4.60 Book Value Per Share

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Book Value of Equity Per Share

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Book Value of Equity Per Share

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Replacement Costs

See Also:
Sunk Costs
Asset Market Value vs Asset Book Value
Accelerated Method of Depreciation
Straight Line Depreciation
Double Declining Method of Depreciation

Replacement Costs Definition

In accounting, the replacement costs definition is the current market price a company would have to pay to replace an existing asset. This is in contrast to book value. Book value is the historic purchase price of the asset, less accumulated depreciation.

Replacement Costs Example

Let’s look at a replacement costs example. If a company bought a machine for $1,000 five years ago, and the value of the asset today, less depreciation, is $300 dollars, then the book value of the asset is $300. However, the cost to replace that machine at current market prices may be $1,500. Therefore, the replacement cost would be significantly higher than the book value.

Similarly, if the company bought a quantity of steel for $10,000 a year ago, and the price of steel subsequently sky-rocketed, then the replacement cost for that same amount of steel could be $15,000, or whatever the current market price of steel dictates for the given quantity.

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Price to Book Value Analysis

Price to Book Value Analysis Definition

Price to book ratio analysis (PBV ratio or P/B ratio) expresses the relationship between the stock price and the book value of each share. In general, the lower the PBV ratio, the better the value is. However, the value of the ratio varies across industries. A better benchmark is to compare with industry average.

Price to Book Value Analysis Formula

Use the following price to book value analysis formula:

Price to book value = Market Cap ÷ book value

Calculation

Book value is the value of the company if you subtracted all liabilities from assets and common stock equity.

For example, assume $ 20,000 in market cap and $ 10,000 in book value.

Price to book value = 20,000 / 10,000 = 2

As a result, investors pay $2 for every dollar of book value that a company has.

Applications

Price to book value ratio measures whether or not a company’s stock price is undervalued. The higher the ratio, the higher the premium the market is willing to pay for the company above its hard assets. A company either is undervalued or in a declining business if the value of 1 or less. Although investors use price to book value ratio to get some idea of how expensive a company’s stock is, it provides very limited information for some industries with hidden assets, which are of great value but are not reflected in the book value.

Resources

For statistical information about industry financial ratios, please click the following website: www.bizstats.com and www.valueline.com.

Price to Book Value Analysis

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Price to Book Value Analysis

See Also:
Price Earnings Ratio
Price to Sales Ratio
Financial Ratios

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Paid in Capital (APIC)

See Also:
Common Stock Definition
Preferred Stocks (Preferred Share)
Treasury Stock (Repurchased Shares)
Owner’s Equity
Balance Sheet

Paid in Capital Definition

The paid in capital definition is the total amount paid on equity or stock over the par value of the stock. In addition, it is a balance sheet account in the stockholder’s equity section. This account simply represents the market value over the book value of the equity. It is also called the premium stock, premium on stock, or additional paid in capital (APIC).


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Paid in Capital Equation

The following paid in capital equation is simply put as the amount paid for the stock over the par value of the stock:

Amount Paid Common Stock – Par Value Common Stock = Additional Paid in Capital

Usually the amount paid for the stock is at the market value so the following formula can also be looked at:

Market Value Stock – Book (par) Value Stock = Additional Paid in Capital

Paid in Capital Example

For example, Yazoo inc. is looking to make a public offering in the market for $2 par value common stock in the amount of 100,000 shares. Thus, the book value of the common stock is $200,000. The investment bank believes that the company will be able to receive a price based on its current market value of stock at $20 per share. Yazoo is unsure that they can receive this price. So, they opt to sell the stock at $19 per share first to the investment bank allowing them to make the offering. They can now debit cash in the amount of $1.9 million. Yazoo will also credit common stock for $200,000 or the book value, and it will also credit the additional paid in capital (APIC) account for the remainder of $1.7 million.

Note: If successful in supplying the market with the stock, then the investment bank will make a profit of $1 million dollars that Yazoo would not see. However, many companies perform this same maneuver to take the volatility of the market out of the equation allowing Yazoo to lock in a price for the financing that they will receive. This is where the term underwriting comes from when referring to investment banking.

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Paid in Capital Definition, Paid in Capital Equation, Paid in Capital
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Capital Gains

See Also:
Tax Brackets
Marginal Tax Rate
Deferred Income Tax
Flat Tax Rates
Company Valuation

Capital Gains Definition

The capital gains definition is the proceeds from the sale of an asset. These gains can be realized from the sale of stocks, bonds, real estate, equipment, intangible assets, or other property. When the asset or property is sold, the capital gain is calculated by subtracting the asset’s book value from its selling price. If the selling price is higher than the book value, it is a capital gain.

It can also refer to an increase in the value of an asset. If the value of an asset increases while held, the increase in value above the asset’s purchase price is considered a capital gain. This gain is considered unrealized until the asset is sold.


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Capital Gains Equation

Capital Gains = Selling Price – Book Value

Losses

A capital loss is the loss incurred on the sale of an asset when the book value exceeds the selling price. Capital losses can occur from the sale of stocks, bonds, real estate, equipment, intangible assets, or other property. When the asset or property is sold, the capital loss is calculated by subtracting the asset’s book value from its selling price. If the book value is higher than the selling price, the company incurs a capital loss.

A capital loss can also refer to a decrease in the value of an asset. If the value of an asset decreases while held, the decrease in value below the asset’s purchase price is considered a capital loss. This loss is considered unrealized until the asset is sold.

Equation

Capital Loss = Selling Price – Book Value

Tax Rates

These gains are taxed according to a rate, called the capital gains tax rate, which may be different from the tax rate for regular income (depending on tax laws at the time). Long term capital gains are capital gains on assets held for more than one year. Short term capital gains are capital gains on assets held for less than one year.

Presently, in the U.S., long term capital gains tax rates are lower than regular income tax rates for individuals. Short term capital gains tax rates are the same as regular income tax rates for individuals. For companies, long term capital gains tax rates and short term capital gains tax rates are the same as regular income tax rates. In the U.S., the taxpayer may employ techniques to defer or reduce capital gains taxes.

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Asset Market Value vs Asset Book Value

See Also:
Accounting Income vs Economic Income
Economic Value Added
Value Drivers:Building Reliable Systems to Sustain Growth
Basis Definition
Variance Analysis
Goodwill Impairment

Asset Market Value versus Asset Book Value

Book value and market value are two ways to value an asset. An asset’s book value can differ from its market value. Market value is the value of an asset as currently priced in the marketplace. In comparison, book value refers to the value of an asset as reported on the company’s balance sheet; however, some assets are reported at market value on the balance sheet.

Book value is equal to the asset’s historical purchase price minus accumulated depreciation. Since book value is based on the asset’s actual purchase price, consider it more reliable but less relevant than market value.

Market value, also called fair market value, is equal to the asset’s current price or value in the open marketplace. Since market value is based on current market prices, consider it more relevant but less reliable than book value.

Asset Value for Company Valuations

Are you comparing asset valuation methods for the purpose of valuing your company? This can become complex, especially when comparing methods for valuing assets. When a valuation becomes complex, it is standard practice to consult with a valuation firm. Need help finding one? We will connect you with one of our strategic partners for your valuation needs. Fill out the form below to get connected:

Your will receive your information between 9-5 Monday through Friday. You can expect to hear back within 24 hours. We only use your information to contact you for the desired help.

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