What Is Book Value Per Share (BVPS)?

What Is Book Value Per Share (BVPS)?

Book value per share (BVPS) measures the book value of a firm on a per-share basis. BVPS is found by dividing equity available to common shareholders by the number of outstanding shares. Book value equals a firm's total assets minus its total liabilities.

Measuring Book Value Per Share (BVPS)

The book value per share (BVPS) metric helps investors gauge whether a stock price is undervalued by comparing it to the firm's market value per share. BVPS is what shareholders receive if the firm is liquidated, all tangible assets are sold, and all liabilities are paid.

$BVPS\ =\ \frac{\text{Total Equity}\ -\ \text{Preferred Equity}}{\text{Total Shares Outstanding}}$BVPS = Total Shares OutstandingTotal Equity − Preferred Equity​

A company's stock is considered undervalued when BVPS is higher than a company's market value or current stock price. If the BVPS increases, the stock is perceived as more valuable, and the price should increase.

If a company's share price falls below its BVPS, a corporate raider could make a risk-free profit by buying the company and liquidating it. If book value is negative, where a company's liabilities exceed its assets, this is known as a balance sheet insolvency.

Example of BVPS

Assume that XYZ Manufacturing has a common equity balance of $10 million and 1 million shares of common stock are outstanding. This means that the BVPS is ($10 million / 1 million shares), or $10 per share. If XYZ can generate higher profits and use those profits to buy assets or reduce liabilities, the firm's common equity increases.

The company generates $500,000 in earnings and uses $200,000 of the profits to buy assets, its common equity increases along with BVPS. If XYZ uses $300,000 of its earnings to reduce liabilities, common equity also increases.

Another way to increase BVPS is for a company to repurchase common stock from shareholders. Many companies use earnings to buy back shares. Assume XYZ repurchases 200,000 shares of stock, and 800,000 shares remain outstanding. If common equity is $10 million, BVPS increases to $12.50 per share.

The Bottom Line

Book value per share (BVPS) tells investors the book value of a firm on a per-share basis. Investors use BVPS to gauge whether a stock price is undervalued by comparing it to the firm's market value per share. Book value refers to a firm's net asset value (NAV) or its total assets minus its total liabilities.