Book Value Per Share: formula
Book Value Per Share: worked example
| Shareholders' equity | $400,000,000 |
|---|---|
| Preferred equity | $0.00 |
| Common shares outstanding | 50,000,000 |
| Share price | $12 |
| Book value per share | $8.00 |
| Price-to-book ratio | 1.50× |
Accounting book value can differ greatly from market value: assets are recorded at historical cost, and intangibles like brands and software are often missing. It is a poor guide for asset-light or fast-growing businesses. Share buybacks can shrink equity and inflate the ratio without changing the business.
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Book Value Per Share: which assumptions move the result?
Shareholders' equity is total assets minus total liabilities on the balance sheet, and preferred equity is subtracted because it belongs to preferred holders. Common shares outstanding and the share price complete the inputs. Use the most recent quarter's balance sheet for both equity and share count.
For companies with large intangible assets, some analysts use tangible book value, which removes goodwill.
Common error: Treating book value as what the assets would fetch. Recorded values lag real ones, and a firm's brand, software or customer base often sits nowhere on the balance sheet.
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Book value per share is what each common share would hold if the company sold its assets at their recorded values and paid off everything it owes. With $400 million of equity across 50 million shares, that is $8. A $12 share price then trades at 1.5 times book.
Asset-heavy businesses such as banks and utilities are usually judged this way, while software firms rarely are.
Subtract preferred equity before dividing. Those holders have a prior claim, so the common shares own only what is left.
The Graham number combines book value with earnings, and the P/E ratio calculator covers the earnings side. The market cap page adds debt and cash, and the EPS calculator gives earnings per share. For financial firms, price-to-book alongside return on equity is a standard pairing.
What does a price-to-book ratio below 1 mean?
The stock trades below the accounting value of its net assets. It can be a bargain, or a sign the market expects the assets to lose value or the business to earn poor returns.
Why is book value less useful for tech companies?
Their main assets, such as software, brand and talent, are not fully recorded on the balance sheet, so book value understates what the business is worth.
What is tangible book value?
It is book value minus intangible assets such as goodwill, showing what shareholders would own if only physical and financial assets counted.