Book Value Per Share

Financial Indicator

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The naive approach to look at Book Value per Share is to compare it to current stock price. If Book Value per Share is higher than the currently traded stock price, the company can be considered undervalued. However, investors must be aware that conventional calculation of Book Value does not include intangible assets such as good will, intellectual property, trademarks or brands and may not be an appropriate measure for many firms.

Book Value per Share 
 = 
Common Equity 
Average Shares 

Book Value per Share (B/S) is can be calculated by subtracting liabilities from assets, and then dividing it by the total number of currently outstanding shares. It indicates the level of safety associated with each common share after removing effects of liabilities. In other words a shareholder can use this ratio to see how much he or she can sell the stake in the company in the event of liquidation.

Book Value Per Share In A Nutshell

Book value per share will help people who own the share determine the value of their shares if the company should close and liquidate their assets and paying anyone they owe money too. This is important because if you invest in companies that are not stable and may be speculative, you want to know how much you will potentially receive should the company go under. Obviously one should not invest much into these types of situations, but there are times and places where this could be beneficial.

Book value per share is taking the total shareholder equity and subtracting out the preferred equity, and then dividing it by the shares outstanding. A simple formula that will give you the book value you are searching for.

Closer Look at Book Value Per Share

Book value per share could also be a way to measure the potential risk. If you determine a book value to be $10 and the stock is trading above the book value, you could use that as a stop loss. Measuring risk is important to any portfolio and should be done carefully because profits are good, but being safe from risk is also just as good.

Book value will likely change because outstanding share may fluctuate as stock is either pumped into the market or taken out. Also, be sure to look at the top of the equation and understand what is fueling these numbers and how it might give you an edge in investing. If you get stuck, there are wonderful tools on the Internet that can help show you how people use this in their research. Join an investing community and see how others are using this tool in their research. This will allow you to see real time examples and as real time questions. Lastly, if you need more guidance, reach out to an investing professional and they can help show you the best ways to use this tool and implement it in your current investing research.