Book value per share (BVPS) is an important metric for individual stock investors to understand. In simple terms, it is the total value of a company's assets divided by the number of shares the company has outstanding. This calculation gives you a snapshot of how much each share in the company is worth (more on that later). While there are other factors to consider when investing in stocks, BVPS can be a valuable tool to help you make informed decisions.
How is book value per share calculated?
The book value per share formula is:
BVPS = (Total Assets – Total Liabilities) / Outstanding Shares
For example, Apple has a total asset value of $351 billion and a total liabilities value of $288 billion. If there are 17 million shares outstanding, the book value per share would be $3.78 ($351 billion – $288 billion / 17 million).
Why does book value per share matter?
Investors often look at the book value per share because it provides insight into a company's financial health. A high BVPS indicates that a company has strong assets and is less leveraged (i.e. has less debt). This can be seen as a positive sign for the future of the company and its stock price. Conversely, a low BVPS may signal that a company is struggling financially and could be at risk of bankruptcy.
While book value per share as a metric is not perfect, it can give you a general idea of how strong or weak a company is from a financial standpoint. When combined with other analyses, it can be helpful in making investment decisions.
Why do investors care about book value per share?
Investors care about book value per share for a few reasons:
– It gives them an idea of how much each share would be worth if the company were to liquidate all of its assets and pay off its liabilities. In other words, it's a way to measure a company's intrinsic value.
– It can be used to compare a company's stock price to its book value. If a company's stock is trading below its book value, it may be seen as undervalued by the market.
– It can be used to compare a company's financial performance to that of its peers. For example, if two companies in the same industry have similar book values, but one has a much higher stock price, the company with the higher stock price may be seen as overvalued by the market.
While book value per share is not the only metric to consider when investing in stocks, it can be a helpful tool in your investment decision-making process. When used along with other factors, such as a company's financial statements and stock price, it can give you a more comprehensive picture of a company and how its stock may perform in the future.
How to interpret book value per share and what to look for when investing
When looking at book value per share, there are a few things to keep in mind:
– The book value is only as good as the accounting methods used to calculate it. Some companies may use creative accounting practices to artificially inflate their book value.
– It's important to compare a company's BVPS to its peers. A company may have a high BVPS, but if its peers have a higher BVPS, it may be seen as undervalued by the market.
– The book value doesn't always reflect a company's true value. For example, a company with a lot of intangible assets (such as patents or goodwill) may have a low book value even though it's actually worth a lot.
– It's just one metric to consider when investing in stocks. Be sure to look at a company's financial statements, stock price, and other factors before making any investment decisions.
When used correctly, book value per share can be a helpful tool in your investment decision-making process. Keep in mind, however, that it's just one metric to consider, and be sure to do your own research before investing in any stock. For a guide on more important metrics to analyze, click here.
Factors that can influence a company's book value per share
There are a few factors that can influence a company's book value per share:
– The accounting methods used to calculate it.
– The mix of assets and liabilities on the balance sheet.
– The number of shares outstanding.
– Intangible assets such as goodwill or patents.
Keep these factors in mind when looking at book value per share, and be sure to do your own research before investing in any stock.
Examples of companies with high and low book value per share
Here are a few examples of companies with high and low book value per share:
– High BVPS: Walmart (WMT), Microsoft Corporation (MSFT), Amazon.com, Inc. (AMZN)
– Low BVPS: Ford Motor Company (F), Peloton (PTON), GoPro. (GPRO)
Using data from Wisesheets, you can easily get the company's historical quarterly and annual book value per share as well as countless other important key metrics such as ROIC, PE, ROE, EPS, etc.
P.S. If you want to experience this yourself, create a free account on this link and forget about wasting time copy-pasting stock data for every company you analyze.
The Wisesheets Team