Book Value of Share
Introduction
Book Value is the value of a company’s assets minus its liabilities. It is measured in terms of the net asset value, or NAV. The book value per share is calculated as follows:
Book value of a company = Assets – Total Liabilities
Book value per share (BVPS) = (Shareholders’ Equity – Preferred Stock) / Average Shares Outstanding
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What is book value of a share?
Book value per share is the book value of a company divided by the number of outstanding shares. Book value per share is also known as book value per share or simply book value. A measure of how much money you would get if you sold all your shares at current market prices, it’s calculated by taking assets (such as cash, accounts receivable and inventory) and subtracting liabilities (such as loans).
To calculate this figure for a specific company, we need to know how many shares are outstanding before dividing their total asset values from total liabilities.
How to find book value?
You can find the book value of a share by dividing its market price by the number of shares outstanding. For example, if you bought 1,000 shares at $10 each, then your company would have $10 million worth of assets and $1 million worth of liabilities (i.e., debt).
The end result would be that you owned one-tenth (1/10th) in each share; thus your total investment would be 100% equity.
To determine how much cash is left after debt payments are made and expenses are covered, subtract those two figures from 100%. This figure represents what’s known as “net working capital.”
How to use Book Value in Share Trading?
Book Value is a measure of a company’s equity. It helps investors determine how much money they should pay for a share, and it also helps investors compare different companies based on their book values.
Book Value of a Share means the difference between the value of a company’s assets (such as cash and investments) and its liabilities (such as debts).
A low Book Value is an indicator that suggests there may be undervalued shares in your portfolio, while high book values indicate overvalued shares.
Book Value / Share Price Ratio
The book value / share price ratio is the most important ratio to understand. It tells you how much money a company has left after paying off its debts and other obligations, which means it shows you how much cash or other liquid assets are left for shareholders (the owners of a business) to use.
The lower your stock’s book value, the more undervalued it is; when there’s no more cash on hand and no way for shareholders to make any more money from their investments, their options look grim—and they may choose not to hold onto shares anymore!
Book Value of a Share can be used as a strong indicator while selecting undervalued stocks. The lower the ratio, the more undervalued the stock.
Book value of a share is the value of the company’s net assets. It’s not the same as market value of a share and should not be used to determine whether or not a stock is undervalued. However, book value can be used as a strong indicator while selecting undervalued stocks. The lower the ratio, the more undervalued the stock.
Conclusion
The book value of a share is a very important parameter for investors. It helps them to know whether the company’s stock price is over or undervalued. If investor believes that the company will be able to make profits and increase its share price in future then he/she buys it immediately by paying more money than its actual book value.
If we assume that each share has one vote then on one hand it gives a representation of market sentiment towards company’s performance, while at same time influences real life decision making process
Also Read : Stocks Operating Margin Definition