What Is Book Value of Equity Per Share (BVPS)?
Book value of equity per share, abbreviated as BVPS, is a company’s available equity to common shareholders apportioned by the number of outstanding common shares.
"Book value” is based on the amount the company has invested in its assets, but not their current market value. In that sense, book value—and book value per share—reflect a minimum value of a company's equity.
Outstanding common shares are a company's stock currently owned by its investors, including shares owned by institutional investors in addition to shares owned the company's officers and insiders. This does not include shares of preferred stock.
Book value is the value reflected on the company’s reported financial statements. The BVPS is theoretically the amount that all shareholders would receive post-bankruptcy, if a company was dissolved and was liquidated.
To calculate BVPS, use this formula:
BVPS = (Total Equity – Preferred Equity)/Total Common Shares Outstanding
In which total equity = total assets – total liabilities
This data is found on the company’s reported financial statements, specifically on the balance sheet, also known as the statement of financial position.
How To Calculate Book Value of Equity
To calculate the book value of equity per share for a company:
- Find the book value of the company.
- Find the number of outstanding shares.
- Divide the company's book value by the total number of shares.
This will give you the book value per share of equity, aka BVPS.
For example, if a business's book value is $800 million and it has 50 million outstanding shares, the price per share of equity is $160.
The Importance of BVPS
Investors and buyers use this calculation to judge whether a company’s stock price is properly valued.
Since BVPS is a theoretical minimum value of a share, based on its asset values, it should be less than the stock’s market value per share. If it is greater than the current market price, the stock is considered to be undervalued.
The company may then be attractive to a purchaser, e.g., a corporate raider, who could buy the company and then sell its assets. In other words, this situation would indicate that the company’s assets are more valuable by themselves than the company as a whole entity.