If the market value per share is lower than the book value per share, then the stock price may be undervalued. The appropriate earnings per share presentation for a 2year comparative analysis would be. These articles will teach you business valuation best practices and how to value a company using comparable company analysis, discounted cash flow dcf modeling, and precedent transactions. A low pb ratio is commonly taken to indicate value whilst a high pb ratio is taken to indicate a growth stock. The book value per preferred share is calculated by dividing the call price or par valueplus the cumulative dividends in arrears by the number of outstanding preferred shares. Book value per share equals total assets minus total liabilities divided by total outstanding shares. Book value per share bvps takes the ratio of a firms common equity. Mostly, the book value is calculated for common stock only. How can we calculate market value of equity and book value. Find the latest book value per share for alibaba group holding limited baba. So, to understand this, let me tell you what book value and earnings per share are individually. It relates the market price of a stock to its book value. Should the company decide to dissolve, the book value per common share indicates the dollar value remaining for common shareholders after all assets are. Book value is a useful tool for evaluating the market value per share.
Find the latest book value per share for amazoncom inc amzn. The highest of these 60 pe values is the 5 year high price earnings ratio. What remains is the equity that is distributable to its shareholders. The presence of preferred stock in the total stockholders equity, however, has a significant impact on the calculation. Market value of equity mv market price per share p x number of issued ordinary share common stock. The book value per share is a market value ratio that weighs stockholders equity against shares outstanding. The formulas and examples for calculating book value per share with and without preferred stock are given below.
Cash earnings per share shows the ability of the company to generate cash flow valuation free valuation guides to learn the most important concepts at your own pace. Book value per share, quasireorganization flashcards. Similarly, abiodun 5 have conduct a study on the value relevance in corporate sectors of 40 nigerian companies, during the period 1999 to 2009, using the. Facebooks book value per share for the quarter that ended in mar. The stock price valuation of earnings per share and book. In other words, the value of all shares divided by the number of shares issued. Book value per share compares the amount of stockholders equity to the number of shares outstanding. Book value per share bvps is a measure of value of a companys common share based on book value of the shareholders equity of the company. Calculating earnings per share gives investors an estimate of what the company should be worth.
Book value per share is the gaap number number of shares outstanding. Terminal value per share forthcoming dividends that yield perpetual growthr. Indian stock market the book value is per share value i. Market to book ratio price to book formula, examples. Priceearnings ratio is a good tool for comparing the value of competing companies. This is a financial measure of a per share assessment of the minimum value of a companys equity. High goodwill and going concern value may not be reflected well by book value.
View book value per share for tot access over 100 stock metrics like beta, evebitda, pe10, free cash flow yield, kz index and cash conversion cycle. Book value per share definition the book value per share is the value each share would be worth if the company were to be liquidated, all the bills paid, and the assets distributed. One way to look at book value per share is to consider what will happen if the company ceases all operations today. How does the book value of a company increase more than. It is the amount that shareholders would receive if the company dissolves, realizes cash equal to the. I am borrowing extracts from my previous posts to make this answer complete. Theoretically, the company can sell all its assets and pay off all its debt and liabilities.
Market value is the current stock price times all outstanding shares, net book value is all assets minus all liabilities. Tangible book value per share is defined as book value minus goodwill and. Fb, including valuation measures, fiscal year financial statistics, trading record, share statistics and more. Part 1 earnings per share eps eps stands for earnings per share. The book value of equity per share is a financial measure which indicates a per share estimation of the minimum value of an entitys equity.
How do i interpret pricebook and book value per share on. Book value per common share bvps definition investopedia. It is calculated by the company as shareholders equity book value divided by the number of shares outstanding. This calculation is often modified to exclude intangible assets, because they are not readily convertible to cash, in which case the calculation is called the tangible book value per share.
Book value per share this ratio indicates the share of. Since preferred stockholders have a higher claim on assets and earnings than common shareholders, preferred equity is subtracted from. During the past 3 years, the average book value per share growth rate was 20. Although the book value of equity per share is a factor that can be used by the investors to determine the value of stock, it presents only a limited value of the firms situation. Relating book value per share to market price a favoured tool of value investors is the pb ratio. Depreciation is the reduction of an items value over time. Growth rate is how much a companys equity is growing over the year. I have already explained few terms in my previous answers.
Alibaba group holding limited baba book value per share. During the past 3 years, the average book value per share growth rate was. So in absolute terms, book value is the net assets of the company. During the past 5 years, the average book value per share growth rate was 22. Book value per common share is a measure used by owners of common shares in a firm to determine the level of safety associated with each individual share after all debts are paid accordingly.
Cash earnings per share corporate finance institute. This interpretation is simplistic and deeper analysis is recommended. Book value is the net asset value of the company according to standard accounting practice gaap, audited. Book value per share financial definition of book value. During the past 5 years, the average book value per share growth rate was. Book value per share is a widely used stock evaluation measure. It has no specific relation to the value of the companys assets, such as book value per share does, which is based on the information from a companys balance sheet. Dividends that yield perpetual growth earnings perpetual growth rate in book value book value. Is it better to buy a company with a lower book value. Thus, this measure is a possible indicator of the value of a companys stock. In other words, divide the applicable equity by the number of shares. Book value per share, is something which is accumulated over time starting from the face value at the start of incorporation, then by accumulated plou.
This ratio indicates the share of equity share holders after the company has paid all its liabilities, creditors, debentures and preference shareholders. The market price per share of stockusually termed simply share price is the dollar amount that investors are willing to pay for one share of a companys stock. Note that shares worth less than book value may be underpriced or they may just have very poor prospects for growth. Book value is the total amount of companys physical assets excluding patents, goodwill minus liabilities. Book value per common share is a measure used by owners of common shares in a firm to determine the level of safety associated with each share after all debts are paid accordingly. Comparatively with the equation 1 the results provide that the book value are more relevant in the explanation of share price variation than the earning per share, indeed the finding supports the alternative hypothesis, the statistics from the equation 2, such as an r 2 0. Book value of an asset refers to the value of an asset when depreciation is accounted for. The market to book ratio, or price to book ratio, is used to compare the current market value or price of a business to its book value of equity on the balance sheet.