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All trading basics

Book Value Per Share

Book Value per Share = (Stockholders Equity minus Preferred Stock) ÷ Average Outstanding Shares

Somewhat similar to earnings per share, book value per share relates the stockholder's equity to the number of shares outstanding, giving the shares a raw value.

Things to remember

  • Comparing the market value to the book value can indicate whether or not the stock in overvalued or undervalued.
  • During bull markets the stock price is more likely to trade significantly higher than book value, and in a bear market the two values will be closer to equal.
Balance Sheet
Consolidated balance sheet for Cory’s Tequila Co. for 1998 and 1999

For Cory's Tequila Co.: ($11,678 minus $0) ÷ 3271 = $3.57

Book Value Analysis:

For the most part the book value (BV) really doesn't tell us a whole lot. Cory's Tequila Co. is trading at over $100 and the BV is only $3.57. BV is considered to be the accounting value of each share, which may be drastically different than what the market is valuing the stock at. And the truth is that market and book values have nothing in common. Market value is what the investment community's expectations are and book value is based on costs and retained earnings. One situation where BV can be useful is if the market value is trading below the book value, this rarely happens, but if it does it could mean that the company is undervalued and might be an attractive buy.