Book value per share is just one of the methods for comparison in valuing of a company. Market value, market capitalization, Enterprise value, or firm value, and other methods may be used in different circumstances or compared to one another for contrast. The book value per share may be used by some investors to determine the equity in a company relative to the market value of the company, which is the price of its stock.
Formula
Book Value Per Share = (Total common stockholders’ equity - Preferred stock) / Number of common shares
Example
‘ABC’ a company has the following information:-
Total assets at the end of the year = $150,000
Total liabilities at the end of the year = $80,000
Preferred Stock = $20,000
Number of common shares = 2000 shares
Now let’s calculate the Shareholders’ Equity first;
Shareholders’ Equity = Total Assets – Total Liabilities
Or, $150,000 – $80,000 = $70,000.
According to the formula, Book Value Per Share is:-