Book Value Per Share (includes calculator)
Book value per share is a measure often used by investors to determine the level of safety associated with a stock investment. The book value per share of a company is easy to calculate and helps the investor determine whether a stock is currently undervalued or overvalued.
Book value per share also lets helps the common shareholder understand what they might claim should the company dissolve. In other words, if the company were to go out of business, book value indicates how much would be left for shareholders after it settled all its outstanding obligations and sold off its assets.
Calculating Book Value Per Share
Book value per share, a component of fundamental analysis, is calculated by subtracting total liabilities from total assets. You then divide that total by the number of common shares outstanding.
Book Value Per Share= Total Assets - Total Liabilities / Common Shares
To Collect Data for the Calculator Below
(1) Go to Yahoo! Finance and enter the stock symbol in the Get Quotes window
(2) On the lower left-hand side under Financials, click on Balance Sheet
Limitations of Book Value Per Share
Because much (often most) of a firm’s worth can be tied to its intellectual capital, the book value it is not always helpful in spotting investment opportunities. Book value is most useful when evaluating firms with liquid assets (banks, financial institutions) or hard assets (capital-intensive companies, like manufacturers). In general, though, a company that is a viable and growing business will be worth more than its book value due to its ability to generate earnings and growth.
Book value per share should be carefully examined when it is believed the market price per share is approach or below book value. When this happens the company might be considered undervalued and could offer an attractive investment opportunity.
During bull markets stocks often trade at prices significantly higher than their book value. The opposite is true in a bear market situation.
GM discusses its book value per share in its 2005 annual report
The Stock Research Pro Valuation Software
The SRP Valuation software offers three modules to assess the value of a stock and the health of a company:
• Discounted Cash Flow (DCF)
• Net Current Asset Value per Share (NCAVPS)
• Dividend Discount Model (DDM)
Each module includes a video tutorial to guide you through the process.
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The above information and the associated calculator are educational and should not be interpreted as financial advice. For advice that is specific to your circumstances, you should consult a financial or tax advisor.
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