What is net asset value per share?

Key Points

• Book value per share (BVPS) is the ratio of common shareholders' equity to the average number of outstanding shares over a specific period of time.

• Book value per share measures a company's net assets on a per share basis.

• Compared to the market price per share, book value per share is a more conservative measure of a company's stock value.

Concept Explanation

Book value per share (BVPS), also known as common stockholders' equity per share, is the ratio of common shareholders' equity to the average number of outstanding shares over a specific period of time. The formula to calculate book value per share is as follows:

Book value per share = Equity attributable to common shareholders / Average number of outstanding common shares

(We use the "average number of outstanding common shares" over a specific period of time because using the value of either the beginning or ending outstanding shares would be biased if the company had issued new shares or conducted significant share buybacks during that period.)

Book value per share (BVPS) measures a company's net assets on a per-share basis.

Book value per share vs. market price per share.

Book value per share and market price per share are both tools used to evaluate the value of a company's stocks.

Market price per share is the current price of a company's stock, the price investors are willing to pay for the common stock at present. Market cap is a forward-looking indicator, and the stock market price reflects investors' expectations of the company's future earnings potential. As the company's expected growth and profitability improve, the market price per share is expected to rise further. On the other hand, book value per share is an indicator calculated based on accounting standards using historical cost. Unlike market price per share, this indicator does not have a forward-looking nature.

Compared to market price per share, book value per share is a more conservative measure of a company's stock value. When the future growth and earnings forecasts of a company are less stable, some value investors prefer to use book value per share as an indicator to analyze whether the stock price is undervalued.