What Is Book Value Per Common Share?
I'm going to explain book value per common share, or BVPS as it's often called. This is a way to figure out the per-share book value of a company based on the equity that belongs to common shareholders. Remember, the book value of a company is just its total assets minus total liabilities—it's not the same as the market price of its shares.
If a company were to shut down and liquidate everything, BVPS tells you the dollar amount left for common shareholders after paying off all creditors. You need to understand this because it gives a baseline for what the shares are worth on paper.
Key Takeaways
- Book value per common share (BVPS) calculates the common stock per-share book value of a firm.
- Since preferred stockholders have a higher claim on assets and earnings than common shareholders, preferred equity is subtracted from shareholder’s equity to derive the equity available to common shareholders.
- If a company’s BVPS is higher than its market value per share, then its stock may be considered to be undervalued.
The Formula for Book Value Per Common Share
Here's the formula you use for BVPS: it's total shareholder equity minus preferred equity, divided by the total outstanding shares. This is straightforward—it's an accounting figure rooted in past transactions. You can plug in the numbers from a company's balance sheet to get this.
What Does BVPS Tell You?
BVPS shows you the book value of common equity, which comes from the original money raised by issuing shares, plus earnings minus losses, and minus dividends paid out. If the company buys back its own stock, that reduces both the book value and the number of shares, which can really drop the BVPS if they're repurchasing at current market prices.
Usually, you use the average number of diluted common shares over the last year for the denominator, accounting for things like options, warrants, and convertible securities that could add more shares.
Example of BVPS
Let me give you a simple example. Suppose XYZ Manufacturing has $10 million in common equity and 1 million shares outstanding. That makes BVPS $10 per share. If they make $500,000 in profits and use $200,000 to buy assets, their common equity goes up, and so does BVPS. Or if they use $300,000 to pay down liabilities, same thing—equity increases.
The Difference Between Market Value per Share and Book Value per Share
Market value per share is just the current stock price—what people are actually paying. It's forward-looking, based on expected profits, growth, and business stability. Book value, on the other hand, uses historical costs. That's why you see big differences sometimes.
For example, marketing costs get expensed right away under GAAP, lowering book value. But if those campaigns build brand value, the stock price can soar, creating a gap between market and book values.
The Difference Between Book Value per Share and Net Asset Value (NAV)
BVPS is for company stocks, but net asset value, or NAV, is for mutual funds or ETFs. You calculate NAV by dividing the total value of the fund's securities by outstanding shares—it's done daily for mutual funds. Analysts often prefer total annual return for performance, but NAV is useful for quick checks.
Limitations of BVPS
BVPS only looks at book value, so it misses intangibles that could boost share value even in liquidation. Think about banks or tech firms—they have loads of intellectual property and human capital, but little tangible assets. Those aren't fully captured in book value calculations.
Other articles for you
Voluntary Accidental Death and Dismemberment Insurance (VAD&D) offers cash benefits for accidental death or loss of body parts, serving as a cheaper supplement to full life insurance.
The enterprise multiple (EV/EBITDA) is a financial ratio that evaluates a company's value by incorporating debt and cash, making it useful for acquisitions and comparisons.
Bank deposits are funds placed in bank accounts for safekeeping, offering security, accessibility, and potential interest.
Buy and hold is a passive long-term investment strategy where investors purchase securities and retain them despite market volatility to achieve healthy returns.
The Federal Housing Administration provides mortgage insurance to help Americans with lower credit scores and smaller down payments access homeownership.
Delivery versus payment (DVP) is a securities settlement method that ensures securities are transferred only after payment is received to minimize default risks.
Regulation Z, part of the Truth in Lending Act, protects consumers by requiring transparent disclosure of credit terms to prevent predatory lending.
A spot exchange rate is the current price for immediately exchanging one currency for another, primarily determined by the forex market.
A franchise is a business model where a franchisee pays a franchisor for the rights to use its brand, processes, and knowledge to operate under the franchisor's name.
The Wisconsin School of Business at the University of Wisconsin-Madison offers undergraduate and graduate programs with a focus on applied learning and strong rankings.