Book Value Per Common Share
Book value per common share (or, simply book value per share - BVPS) is a method to calculate the per-share book value of a company based on common shareholders' equity in the company. The book value of a company is the difference between that company's total assets and total liabilities, and not its share price in the market.
Should the company dissolve, the book value per common share indicates the dollar value remaining for common shareholders after all assets are liquidated and all creditors are paid.
Definition: Book Value per Share (BVPS) is a method of calculating a company's net asset value per share based on common shareholders' equity. The company's net assets are the difference between its total assets and total liabilities, not its market price. If the company is dissolved, BVPS represents the dollar value remaining for common shareholders after all assets are liquidated and all creditors are paid.
Origin: The concept of BVPS originates from accounting and financial analysis, dating back to the late 19th century. At that time, investors and analysts began using this metric to assess a company's financial health and the actual value of shareholders' equity.
Categories and Characteristics: BVPS can be divided into book value per share and adjusted book value per share. Book value per share is calculated based on the book value in the company's financial statements, while adjusted book value per share considers potential asset impairments or revaluations. The advantage of book value per share is its simplicity and ease of data acquisition; its disadvantage is that it may underestimate or overestimate the actual asset value. Adjusted book value per share better reflects the real situation but is more complex to calculate and requires professional knowledge.
Specific Cases: Case 1: Suppose Company A has total assets of $10 million, total liabilities of $4 million, and common shareholders' equity of $6 million. If Company A has 1 million outstanding shares, its BVPS is $6 million / 1 million shares = $6. Case 2: After revaluing its assets, Company B finds that the market value of some of its fixed assets is higher than the book value, and the adjusted BVPS increases from $5 to $7, better reflecting Company B's actual financial condition.
Common Questions: 1. What is the difference between BVPS and market price? BVPS reflects the book value of shareholders' equity, while the market price reflects investors' expectations of the company's future profitability. 2. Why does BVPS change? BVPS changes due to variations in the company's assets, liabilities, and shareholders' equity.
