Book Value Per Share

Book value or shareholder equity can be found on the balance sheet. Book value is simply calculated:

BV or Equity = Assets – Liabilities

Book value can be calculated in more specific manners excluding and including certain items. Personally I like to exclude Goodwill from the assets for the calculation, leaving unknown’s out of the equation. Now to calculate book value per share you will take the shareholder equity and divide it by the number of shares outstanding, leaving you with B/V per share.

The book value or equity is the value of the company after retiring all out standing debt and payment obligations leaving you with a “liquidation value” of the remainder of the assets. This is what the company is worth if it closed the doors tomorrow. Some situations and some items can lead to distorted calculations and distorted equity value, so it is always important to dig deeper in the financials of a company.

Example: If Tom had $10,000 in cash, a car worth $10,000, and a house worth $275,000 his assets would equal $295,000. Now if Tom owed $200,000 on his house, $3,000 on his car, and $1,000 on his credit card he would have liabilities of $204,000. Now hypothetically, Tom is being sold for $30,000 and most would say that is a good deal, here is why.

$295,000 – $204,000 = $91,000 (Tom has a book value or equity of $91,000 but selling for $30,000)


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