Loading the player...

What is 'Book Value Per Common Share'

Book value per common share is a formula used to calculate the per share value of a company based on common shareholders' equity in the company.  Should the company dissolve, the book value per common share indicates the dollar value remaining for common shareholders after all assets are liquidated and all debtors are paid.

BREAKING DOWN 'Book Value Per Common Share'

The book value per common share (formula below) is an accounting measure based on historical transactions:

Formula to calculate Book Value Per Common Share

The book value of common equity in the numerator reflects the original proceeds a company receives from issuing common equity, increased by earnings or decreased by losses, and decreased by paid dividends. A company's stock buybacks decrease the book value and total common share count. Stock repurchases occur at current stock prices, which can result in a significant reduction in a company's book value per common share. The common share count used in the denominator is typically an average number of diluted common shares for the last year, which takes into account any additional shares beyond the basic share count that can originate from stock options, warrants, preferred shares, and other convertible instruments.

The Difference Between Market Value per Share and Book Value per Share

The market value per share is a company's current stock price, and it reflects a value that market participants are willing to pay for its common share. The book value per share is calculated using historical costs, but the market value per share is a forward-looking metric that takes into account a company's earning power in the future. With increases in a company's estimated profitability, expected growth, and safety of its business, the market value per share grows higher. Significant differences between the book value per share and the market value per share arise due to the ways in which accounting principles classify certain transactions.

For example, consider a company's brand value, which is built through a series of marketing campaigns. U.S. generally accepted accounting principles (GAAP) require marketing costs to be expensed immediately, reducing the book value per share. However, if advertising efforts enhance the image of a company's products, the company can charge premium prices and create brand value. Market demand may increase the stock price, which results in a large divergence between the market and book values per share.

RELATED TERMS
  1. Price-To-Book Ratio - P/B Ratio

    Companies use the price-to-book Ratio to compare a firm's market ...
  2. Fully Diluted Shares

    Fully diluted shares is the total number of shares that would ...
  3. Capital Stock

    Capital stock is the number of common and preferred shares that ...
  4. Gross Cash Recovery (GCR)

    Gross cash recovery is the gross cash collection expected over ...
  5. Appraisal Capital

    Appraisal capital is a form of accounting adjustment used when ...
  6. Book Value Of Equity Per Share ...

    Book value of equity per share (BVPS) is the minimum value of ...
Related Articles
  1. Investing

    Market value versus book value

    Understanding book value and market value is helpful in determining a stock's valuation and how the market views a company's growth prospects in the future.
  2. Investing

    Book Value: How Reliable Is It For Investors?

    In theory, a low P/B ratio means you have a cushion against poor performance. In practice, it is much less certain.
  3. Investing

    How Buybacks Warp The Price-To-Book Ratio

    Relying on price-to-book can get ugly if a company has repurchased stock. Learn why.
  4. Investing

    Deep Discount-To-Book Value Stocks

    With the right company, buying at a discount-to-book value could prove fruitful.
  5. Investing

    Digging Into Book Value

    This calculation will serve up your portion of the shareholder pie.
  6. Investing

    Assess Shareholder Wealth With EPS

    Find out if management is doing its job of creating profit for investors.
  7. Investing

    Book Value Per Share for Banks: Is It a Good Measure? (WFC, BAC)

    Find out why bank stocks usually trade below book value per share, and understand how trading activities increase banks' risk exposures and affect valuation.
  8. Investing

    Balance Sheet: Analyzing Owners' Equity

    Analyzing owners’ equity is an important analytics tool, but it should be done in the context of other tools such as analyzing the assets and liabilities on the balance sheet.
  9. Personal Finance

    Top 5 Books to Become a Professional Trader

    For people who want to learn how to trade and invest for themselves, there are a wealth of excellent books on trading available to learn from.
RELATED FAQS
  1. How Are Book Value and Intrinsic Value Different?

    Book value and intrinsic value are two ways to measure the value of a company. Find out which is known as the true value ... Read Answer >>
  2. How Do Fully Diluted Shares Affect Earnings?

    Learn how fully diluted shares affect EPS calculations and perceived value. Read Answer >>
  3. Calculate the difference between nominal value and real value of stock shares

    Explore the impact of real value and nominal value on stock trading. Find out how these values are assigned and what causes ... Read Answer >>
Trading Center