Wednesday, September 7, 2016

Definition of Book Value per Share

Meaning/ Definition:


‘Book Value of a Share’ is net assets owned by a company reduced or converted or brought down to a single share. Net assets are total tangible assets reduced by all outside liabilities (other than share capital and reserves).


Significance:


‘Book Value per Share’ forms the denominator in the formula for computing the Price to Book Value, which is one of the most important metric in determining the fair price of a share, the other being ‘Price to Earnings (PE) Ratio.



Formula:


Book Value per Share Fprmula


Example:


Table showing the computation of book value per share

Further Reading:


Definition of Price to Book Value

Meaning/ Definition:

‘Price to Book Value (P2BV)’ is a measure of the number of times the book value of a share is trading at in the stock market. The ratio or proportion is obtained by dividing the ‘Current Market Price (CMP)’ of the share by its book value.


Significance:

Price to Book Value is the second most important metric in determining the fair price of a share, the first being ‘Price to Earnings (PE) Ratio. If the price is less than the book value it is a good bargain. Maximum recommended is 1.5 times, beyond which the price is not fair or reasonable.



Formula:

Example:



Further Reading: