Loading the player...

What is 'Book Value Of Equity Per Share - BVPS'

Book value of equity per share (BVPS) is a ratio that divides common equity value by the number of common stock shares outstanding. The book value of equity per share is one factor that investors can use to determine whether a stock price is undervalued. If a business can increase its BVPS, investors may view the stock as more valuable, and the stock price increases.

Book Value Of Equity Per Share (BVPS)

BREAKING DOWN 'Book Value Of Equity Per Share - BVPS'

Common equity (or common stock equity) is defined using the balance sheet formula, which is (assets – liabilities = equity). Common equity refers to the equity section of the balance sheet less preferred stock equity. The equity section of the balance sheet includes common stock and preferred stock. If the company generates earnings, preferred stockholders receive dividend payments before common shareholders. Equity from preferred stock is excluded from the BVPS calculation.

How Companies Increase BVPS

Assume, for example, that XYZ Manufacturing’s common equity balance is $10 million, and that 1 million shares of common stock are outstanding, which means that the BVPS is ($10 million / 1 million shares), or $10 per share. If XYZ can generate higher profits and use those profits to buy more assets or reduce liabilities, the firm's common equity increases. If, for example, the company generates $500,000 in earnings and uses $200,000 of the profits to buy assets, common equity increases along with BVPS. On the other hand, if XYZ uses $300,000 of the earnings to reduce liabilities, common equity also increases.

Factoring in Common Stock Repurchases

Another way to increase BVPS is to repurchase common stock from shareholders. Many companies use earnings to buy back shares. Using the XYZ example, assume that the firm repurchases 200,000 shares of stock, and that 800,000 shares remain outstanding. If common equity is $10 million, BVPS increases to $12.50 per share. A firm that repurchases shares can also take steps to increase the asset balance and reduce liabilities.

Examples of Other Important Ratios

BVPS is one of several important ratios to assess the value of a company. The price-to-earnings (P/E) ratio, for example, is defined as the (market price of the stock) / (earnings per common stock share). This ratio calculates how much an investor is paying for each dollar of common stock earnings; a lower P/E ratio makes the stock price more attractive. If XYZ Manufacturing's market price is $60 per share and the firm earns $3 per common stock share, the P/E ratio is ($60 / $3), or 20.

Financial analysts also use the debt-to-equity (D/E) ratio, which is defined as (total liabilities) / (stockholder’s equity). Analysts monitor this ratio to determine whether a company is carrying too much debt.

RELATED TERMS
  1. Equity

    Equity is the value of an asset less the value of all liabilities ...
  2. Balance Sheet

    A balance sheet reports a company's assets, liabilities and shareholders' ...
  3. Shareholders' Equity (SE)

    Shareholder's equity (SE) is the owner's claim after subtracting ...
  4. Equity Market Capitalization

    Equity market capitalization is the measure of the total market ...
  5. Shareholder Value

    The value delivered to shareholders because of management's ability ...
  6. Common Size Balance Sheet

    A balance sheet that displays both the numeric value of all entries, ...
Related Articles
  1. Investing

    The 5 Types Of Earnings Per Share

    A look at the five varieties of Earnings Per Share (EPS) and what each represents can help an investor determine whether a company is a good value, or not.
  2. Investing

    Reading the Balance Sheet

    Learn about the components of the statement of financial position and how they relate to each other.
  3. Investing

    Investment Valuation Ratios

    Learn about per share data, price/book value ratio, price/cash flow ratio, price/earnings ratio, price/sales ratio, dividend yield and the enterprise multiple.
  4. Managing Wealth

    The Different Between Preferred and Common Stock

    Preferred and common stocks are different in two key ways.
  5. Investing

    Lowe's Stock: Capital Structure Analysis (LOW)

    Examine Lowe's Companies' equity capitalization, debt capitalization and enterprise value to analyze trends in the retailer's capital structure.
  6. 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.
  7. Investing

    Equity Multiplier

    The equity multiplier is a straightforward ratio used to measure a company’s financial leverage. The ratio is calculated by dividing total assets by total equity.
  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. 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.
RELATED FAQS
  1. How do you calculate shareholder equity?

    Shareholder equity is calculated by subtracting a company's total liabilities from its total assets. It's the amount remaining ... Read Answer >>
  2. What's the difference between the equity market and the stock market?

    Learn about the difference between the equity market and the stock market, and how the terms equity market and stock market ... Read Answer >>
  3. What is the difference between market capitalization and equity?

    Understand the difference between market capitalization and equity, two primary measurements used to evaluate the worth of ... Read Answer >>
  4. What is the difference between preferred stock and common stock?

    Preferred stockholders have a greater claim to a company's assets and earnings than common stockholders, but may not have ... Read Answer >>
Hot Definitions
  1. Investment Advisor

    An investment advisor is any person or group that makes investment recommendations or conducts securities analysis in return ...
  2. Gross Margin

    A company's total sales revenue minus its cost of goods sold, divided by the total sales revenue, expressed as a percentage. ...
  3. Inflation

    Inflation is the rate at which prices for goods and services is rising and the worth of currency is dropping.
  4. Discount Rate

    Discount rate is the interest rate charged to commercial banks and other depository institutions for loans received from ...
  5. Economies of Scale

    Economies of scale refer to reduced costs per unit that arise from increased total output of a product. For example, a larger ...
  6. Quick Ratio

    The quick ratio measures a company’s ability to meet its short-term obligations with its most liquid assets.
Trading Center