Book Value per Share (BVPS)

Definition

Book Value per Share (BVPS) is a market value ratio that measures the per-share value of a company's assets minus its liabilities. It provides an estimate of the intrinsic value of a company's stock based on its net assets and is often used to assess a stock's valuation relative to its book value.

5 Must Know Facts For Your Next Test

1. BVPS is calculated by dividing a company's total book value by the number of outstanding common shares.
2. BVPS provides a conservative estimate of a company's value, as it does not include intangible assets or goodwill that may not be easily liquidated.
3. A high BVPS relative to a company's market price per share may indicate the stock is undervalued, while a low BVPS may suggest the stock is overvalued.
4. BVPS is often used in conjunction with other market value ratios, such as Price-to-Book (P/B) ratio, to evaluate a company's valuation and potential for growth.
5. BVPS can be affected by factors like asset write-downs, debt financing, and share buybacks, which can impact a company's net assets and outstanding shares.

Review Questions

• Explain how BVPS is calculated and what it represents in terms of a company's valuation.
  • BVPS is calculated by dividing a company's total book value (assets minus liabilities) by the number of outstanding common shares. It represents the per-share value of the company's net assets, providing a conservative estimate of the intrinsic value of the company's stock. A high BVPS relative to the market price per share may indicate the stock is undervalued, while a low BVPS may suggest the stock is overvalued.
• Discuss the relationship between BVPS and other market value ratios, such as Price-to-Book (P/B) ratio, in evaluating a company's valuation.
  • BVPS is often used in conjunction with other market value ratios, such as the Price-to-Book (P/B) ratio, to provide a more comprehensive assessment of a company's valuation. The P/B ratio compares a company's market price per share to its BVPS, indicating whether the stock is trading at a premium or discount to its book value. Together, BVPS and P/B ratio can help investors determine whether a company's stock is undervalued, overvalued, or trading at a fair price relative to its underlying net asset value.
• Analyze how factors like asset write-downs, debt financing, and share buybacks can impact a company's BVPS and influence its perceived valuation.
  • Factors such as asset write-downs, debt financing, and share buybacks can significantly impact a company's BVPS and, consequently, its perceived valuation. Asset write-downs can reduce the company's book value, leading to a lower BVPS. Debt financing can increase liabilities and decrease net assets, also lowering BVPS. Conversely, share buybacks can reduce the number of outstanding shares, potentially increasing BVPS. These changes in BVPS can affect how the company's stock is valued relative to its underlying net asset value, potentially making it appear under- or overvalued in the market.

Related terms

Book Value: The total value of a company's assets minus its total liabilities, representing the net worth or shareholder's equity of the company.

Market Value Ratios: A set of financial ratios that compare a company's market value to its book value, earnings, or other fundamental measures to assess its valuation.

Intrinsic Value: The perceived true or inherent value of a company, based on an analysis of its financial and operational data, rather than its market price.