Book value per share is a measure of a company’s share value if it were liquidated and all debts were paid. It is different from market value per share and can indicate a company’s financial health. Investors should track it when making decisions about buying, holding or selling shares.
Book value per share is a type of valuation or measure of the value of the shares issued by a specific company. The calculation makes it possible to identify the specific monetary amount that the investor would receive for each share in the event that it were necessary to liquidate the company’s assets and settle all outstanding debts. This particular measure normally focuses on the book value of common stock rather than the value of preferred stock.
While there is sometimes confusion about what is meant by market value per share and book value per share, it’s important to realize that the two figures are very different. Market value per share has to do with how much the stock would sell for at today’s market prices and is subject to constant change as the desirability of those shares shifts in the market. In contrast, the carrying amount per share is a figure that is reported on the company’s balance sheet and is affected by the current outstanding debts that the company owes. Typically, the book value will be less than the current market value.
Tracking changes in book value per share from one accounting period to another can provide insight into the company’s financial condition. When that value goes up, it’s a sign that the company is managing its debt efficiently, and that if the company was sold and liquidated, investors would receive more per share. At the same time, if the book value remains stagnant or declines in subsequent periods, this may indicate impending financial problems for the company, especially if the debt load continues to increase due to reduced income.
Investors may also wish to consider the book value per share when making decisions about buying, holding or selling such shares. This is especially true if there are indications that the issuing company is facing an imminent period of financial hardship which could lead to bankruptcy and eventual liquidation. In this scenario, investors would want to benchmark for that per-share book value, selling the shares just before reaching that figure. Because many companies include the book value per share in financial information released to investors in periodic reports and earnings meetings, keeping track of the current book value of shares is a relatively simple task that requires very little time or effort.
Smart Asset.
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