Tag Archives | market value

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

Download the Top 10 Destroyers of Value to identify any destroyers of value and maximize the potential value.

Book Value of Equity Per Share

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Book Value of Equity Per Share

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Fair Market Value

See Also:
Adjusted EBITDA
Asset Market Value vs Asset Book Value
Valuation Methods
Goodwill Impairment

Fair Market Value Definition

The Fair Market Value definition is the price a specific property, asset, or business would be purchased for in a sale. A company’s fair market value should be an accurate appraisal of its worth.

Calculating Fair Market Value is subject to the following conditions:

  1. Prospective buyers and sellers must be knowledgeable about the asset.
  2. Buyers and sellers must not be coerced or strong-armed into selling or purchasing.
  3. All parties must provide a reasonable time frame to complete the transaction.

In other words, an estimate of the amount of money an industry-educated, interested, unpressured buyer would pay to an industry-educated, interested, unpressured seller is the FMV.

How to Determine the Fair Market Value of Your Company

If you are considering selling your business in the future or are just trying to strategically plan for the long-term, then it is crucial that you determine the fair market value of your company. The difference between the fair market value and the purchase price can often be considerable; consequently, many sellers hire professional appraisers for business valuation. This cost can range from a few thousand dollars to $50,000; however, we highly recommend to hire a third party as most owners inaccurately estimate the value of their business, which can lead to disappointed expectations regarding the company’s value or a low sale that leaves hard-earned money on the table.

(Are you in the process of selling your company? The first thing to do is to identify “destroyers” that can impact your company’s value. Click here to download your free “Top 10 Destroyers of Value“.)

What Your Appraiser Will Look For

There are many ways to calculate the Fair Market Value of your business; some of the factors that affect a business’s FMV are the business type, the economic conditions at the desired time of sale, the book value, recent income, dividends, goodwill, and recent prices paid for comparable businesses. During an assessment of your company, an appraiser will look for the following items along with many others:

  1. Future Earnings: An appraiser will forecast future earnings over multiple years, factoring in the discount cash flow and discount residual value by comparing your company to similar ones. The discount rate reflects the diminishing value of money year after year. They will also determine the “capitalization of earnings rate,” which indicates the cost of capital and the company’s risk.
  2. Asset Assessment: They will evaluate the Fair Market Value of all the tangible assets of the company, such as inventory or equipment, as well as the intangible assets, such as brand, reputation, and location.
  3. Comparable Sales Figures: They will analyze recent sales of commensurate companies.
  4. A Partial Purchase Discount: If the buyer is purchasing a minority share of the company, then less than 50%, apply a discount since the other party would still control the business.

Conclusion

Appraisers and valuation experts typically use more than one approach when evaluating the FMV of a company. So start identifying the value of your business today by grabbing your business tax returns and general ledger. Before you start the valuation process, download the Top 10 Destroyers of Value to identify any destroyers of value and maximize the potential value.

Fair Market Value, Fair Market Value Definition, Determine the Fair Market Value

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Fair Market Value, Fair Market Value Definition, Determine the Fair Market Value

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Singapore Stock Exchange (SGX)

Singapore Stock Exchange (SGX)

A merger between the Stock Exchange of Singapore and the Singapore International Monetary Exchange formed the Singapore Stock Exchange (SGX) in 1999. Furthermore, it is one of the largest Asian exchanges in terms of market capitalization and trading volume.

Singapore Stock Exchange (SGX) Meaning

The SGX is well known for its derivatives trading in addition to its equity trading. The make-up of the SGX market is approximately 25% in derivatives while the other 75% in equities. It also has approximately 775 companies listed and the SGX market capitalization is around 650 billion in Singapore Dollars. The SGX index is the Straits Times Index, and is considered to be a key indicator of the Asian markets. The Straits Times takes the 30 largest companies and market-value weights these stocks.

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singapore stock exchange

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singapore stock exchange

See Also:
Toronto Stock Exchange (TSX)
Hong Kong Stock Exchange (HKEX)
Shanghai Stock Exchange (SSE)
Tokyo Stock Exchange (TSE)
Bombay Stock Exchange (BSE)

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Reverse Stock Split

See Also:
Common Stock Definition
Intrinsic Value – Stock Options
Stock Options Basics
Treasury Stock (Repurchased Shares)

Reverse Stock Split

A reverse split is a procedure that is the exact opposite of a stock split. It involves reducing the number of shares for the corporation while maintaining the same market value. However, the cost per share will be worth more in the market after a reverse stock split occurs.

Reverse Stock Split Meaning

A reverse stock split is usually performed by companies that are going through some financial difficulty and their price may be too low. Some exchanges require that a company maintain a certain price per share to be listed. For example, the U.S. exchanges require a stock price to be above $1 to be listed. If a company’s stock price were approaching this $1 then the company might perform a reverse split to try and up the price per share and keep the company listed.

Reverse Stock Split Example

Blokbusta Inc. has been a declining business the past couple of years. It’s stock price has steadily declined from the $20 Per share two years ago, and prospects for the company are not looking favorable. The current price per share has dropped to $2 per share. To be listed on the exchange that it is currently on the price per share must be listed at least $1. Worried that Blokbusta might fall below the $1 mark before it can turn around the company, Blokbusta performs a reverse split of 10 to 1. There are currently 100,000 shares outstanding. What is the new stock price?

The current market value of the stock is $200,000 (100,000 shrs. * $2/shr.)

The new amount of shares will be 10,000 (100,000/10)

Thus the new price per share will be $20 per share ($200,000/10,000 shrs.)

Don’t leave any value on the table! Download the Top 10 Destroyers of Value whitepaper.

reverse stock split

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

 

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Enterprise Value (EV)

See Also:
EBITDA Definition
EBITDA Valuation
Adjusted Present Value (APV) Method of Valuation
Company Valuation Introduction
Valuation Methods

Enterprise Value (EV) Definition

Enterprise Value is simply the total market value of the firm which includes the value of all equity holders as well as debt holders. The EV method is often considered a better measurement for Merger and Acquisition (M&A) activity than most other valuations.

Enterprise Value (EV) Meaning

The enterprise value is a great measure for the total value of a firm and is often a great starting point for negotiations for a business. This is because the EV takes into account the debt holders which should be part of an acquisition price as the acquiring firm will be purchasing the amount of debt as well as equity. The valuation often takes place by using the formula below or by finding the EBITDA of the target and discounting it back at the WACC. The value is then derived by using some multiple or a perpetuity method may be better if a long term growth rate can be determined for the company.

Enterprise Value (EV) Formula

The EV formula is as follows:

EV = Common and Preferred Equity at MV + All Debt Obligations + Non-Controlling InterestCash

enterprise value

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Cooperative (co-op)

Cooperative (co-op) Definition

A Cooperative or co-op is a for profit or non-profit entity that is non taxable. It is a form of business that stands to eliminate the middleman in hopes of gaining a larger profit or savings for a group as a whole. This means that the members of a co-op are in charge of making decisions for the entity as a whole.

Cooperative (co-op) Meaning

Cooperatives are often formed to benefit a specific group like a bunch of farmers or residents in a particular building. The advantage is that each member owns a bit of the co-op. Then they reap the benefits by the amount of transactions that take place. Oftentimes, farmers establish these to ensure that there is less competition in pricing. They also do this so the co-operative can make the most out of profits. At the same time, the co-op can purchase items that the group as a whole will need to run each of their individual farms.

For residents living in a building a co-op can be beneficial because it gives each member a share of the equity in the building. The member can then buy more equity or sell for whatever the market will take. Other benefits of a residential cooperative business model include the ability to rent a space for way less than market value. Co-operatives are very well established throughout the world for various other entities. A co-op business can be in the form for utilities and banking institutions, or for agricultural benefits and residences as discussed above.

cooperative

See Also:
C Corporation
Sole Proprietorship
General Partnership
Limited Partnership

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