Definition
The Book Value of Equity Per Share (BVPS) is a financial metric that represents a per share assessment of a company’s equity. It is computed by dividing the company’s total book value of equity by the total number of outstanding shares. It provides investors with the per-share value of a company’s equity, giving insights into the company’s financial health and the shareholders’ stake.
Phonetic
The phonetics of the keyword “Book Value of Equity Per Share (BVPS)” is: Book – /bʊk/Value – /ˈvæl.juː/of – /ʌv/Equity – /ˈek.wɪ.ti/Per – /pɜːr/Share – /ʃeər/(BVPS) – /ˌbiː viː piː ˈes/
Key Takeaways
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Book Value of Equity Per Share (BVPS) is a financial measure
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BVPS is a financial measure that is used as a gauge of a company’s book value (the value of the company if all assets were liquidated and debts paid off) on a per-share basis. This means it is calculated by dividing the total book value of the company by the number of outstanding shares. It is considered as one of the tools for investors to assess whether a company’s stock is undervalued or overvalued.
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BVPS is an important tool used for valuation
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BVPS can be of major influence during a company’s buyout or merger. It’s an important tool used in the valuation of the company as it represents a per-share assessment of the minimum value of a company’s equity. It can support the shareholders in deciding if they should participate in such actions.
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Limitations of BVPS
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Despite its utility, BVPS has its limitations. For one, it doesn’t consider intangible assets (patents, copyrights, etc.) which could significantly add to a company’s worth. Moreover, it may not always be an accurate assessment of what a shareholder may receive if a company were to liquidate, as the liquidation process can often uncover unforeseen expenses or outstanding debts.
Importance
Book Value of Equity Per Share (BVPS) is a crucial measure in business and finance as it provides a per share evaluation of a company’s equity, which is useful for investors when determining the financial health and market position of a company. The BVPS provides insight into the actual value of a company’s equity on a per-share basis if it were liquidated, helping investors gauge the intrinsic value of their shares. By comparing the BVPS to the market value per share, investors can determine whether a company’s shares are overpriced or underpriced, supporting investment decisions. Additionally, companies can use BVPS as an internal measure for assessing growth over time, which ultimately contributes to sustainable financial management and strategic planning.
Explanation
Book Value of Equity Per Share (BVPS) is a widely-used ratio in the financial world that is primarily employed to evaluate a firm’s net asset value available to common shareholders on a per-share basis. It serves as a vital tool in price-to-book equity valuation and is imperative for investors to estimate whether a stock is under or overvalued. BVPS essentially provides a per-share estimation of the minimum value of a company’s equity, and is used by the investors to ensure they are paying a fair price for a company’s shares.BVPS is instrumental in assisting investors and market analysts in comprehending a company’s financial health when juxtaposed with market price per share. For instance, when the market price per share is lower than the BVPS, it usually suggests that the market either undervalues the company, or the company is not earning satisfactory returns on its assets. Conversely, a market price per share higher than the BVPS suggests the opposite. Therefore, BVPS serves as a yardstick in investor’s decision-making process and plays a crucial role in their investment strategies.
Examples
Book Value of Equity Per Share (BVPS) is a financial metric that represents a per share assessment of the minimum value of a company’s equity. Here are three real-world examples:1. **Apple Inc. (AAPL)**: For the fiscal year ending in September 2020, Apple reported a total equity of $65.34 billion, and currently has about 16.99 billion outstanding shares. To calculate the BVPS, we would divide $65.34 billion by 16.99 billion shares, which would give an approximate BVPS of $3.84.2. **Microsoft Corporation (MSFT)**: As of June 30, 2020, Microsoft had a total equity of $118.3 billion, and there are approximately 7.58 billion outstanding shares. Hence, the BVPS would be the total equity ($118.3 billion) divided by the number of outstanding shares (7.58 billion), yielding a BVPS of approximately $15.61.3. **Tesla Inc. (TSLA)**: In December 2020, Tesla reported a total equity of approximately $22.21 billion and currently has about 959.85 million outstanding shares. The BVPS is calculated by dividing the total equity ($22.21 billion) by the number of outstanding shares (959.85 million), yielding a BVPS of approximately $23.15.Please note that it is important to remember that the book value is often a far cry from the market value, particularly for the tech giants, and so BVPS should never be used in isolation but in conjunction with other metrics.
Frequently Asked Questions(FAQ)
What is the Book Value of Equity Per Share (BVPS)?
BVPS is a financial metric derived by dividing a company’s total shareholder equity by the total number of outstanding shares. It represents the amount of equity per share if the company was liquidated, remaining after the payment of all liabilities.
How can BVPS be calculated?
BVPS formula is: (Total Shareholder’s Equity – Preferred Equity) / Total Outstanding Shares
How is BVPS useful?
BVPS allows investors to assess the company’s financial health by comparing its current market price to its book value. If BVPS is higher than the market price, the company may be undervalued.
What is the significance of a high BVPS?
A high BVPS can indicate a company has substantial assets or low liabilities, signifying strong financial health. However, a high BVPS does not always indicate a good investment, as it may not take into account the company’s future earning potential.
Is it possible for a company to have a negative BVPS?
Yes, it happens when the company’s total liabilities surpass its total assets. It can be a red flag and potential investors might see it as a risky investment.
How does BVPS relate to market value?
Market value is determined by the current stock market price whereas BVPS is rooted in the company’s balance sheet. Comparing these values can help determine if a stock is over or underpriced.
Can BVPS help in comparing different companies?
Yes, investors often use BVPS to compare companies in the same industry as it can indicate a company’s efficiency in using its assets.
Does BVPS reflect a company’s future earning potential?
No, BVPS is grounded in a company’s current financial health and does not consider future earnings or growth potential. Other metrics are more suitable to assess future performance.
Related Finance Terms
- Shareholder Equity
- Outstanding Shares
- Balance Sheet
- Retained Earnings
- Tangible Asset Value
Sources for More Information
