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Definition
Book value per share is calculated this way:
Book Value per Share = (
Total Equity -
Preferred Stock)/
Total Shares Outstanding.
Theoretically it is what the shareholders will receive if the company is liquidated. Total equity is a balance sheet item and equal to total assets less total liabilities of the company.
Book value may include intangible items which may come from the companys past acquisitions. Book value less intangibles is called Tangible Book.
Formula
Book Value per Share = (
Total Equity -
Preferred Stock)/
Total Shares Outstanding Explanation
Usually a companys book value and
Tangible Book Value per Share may not reflect its true value. The assets may be carried on the balance sheets at the original cost minus depreciation. This may underestimate the true economic values of the assets. It also may over-estimate their true economic value because the assets can become obsolete.
For financial companies such as banks and insurance companies, their assets may be reported in current market value of the assets owned. Book values of financial companies are more accurate indicator of the economic value of the company.
Related Terms
Total Equity,
Preferred Stock,
Total Shares Outstanding,
Tangible Book Value per Share
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