The book value or BV per share is an indicator to determine the equity relative to the market value. Book value often called as accounting value too. As book value and market value used so often as investment term, there can be confusion. It should be clear that there is no direct connection between BV and market value. They two are completely different aspects. Book value per share meaning is a very vital concept here.
Book Value per Share Meaning
Literally, Book value per share meaning the value of the business according to its financial statement. It means the actual worth of the asset of a company. The actual worth asset refers (company’s asset – company’s liabilities). Tangible assets such as land, equipment, building, material, etc. Liabilities consist of debt, expenses, etc.
As we have mentioned above that BV and market value often get confused. So here is some brief description of market value in the stock market. BV is the actual worth of a company while market value indicates the current price. Market value is the highest estimated value of the certain property. And the market decides the value. Therefore Market value can be higher or lower than BV.
BV reflects the company’s actual worth, it is not based on the current trend. Company’s BV is closer to the company’s true or fair value. Using BV and face value one can compare the ups and downs of the market. In order to calculate it accurately, one must know the balance sheet of a company.
However, here are
Some Features of Book Value Per Shares
- BV is divided by the total number of shares, this is how book value per share is calculated.
- It is one of the most important tools for some other calculation, i.e. price to BV ratio.
- the actual BV of a stock indicates how is the current market fluctuates.
- It is an intrinsic value of per share.
An example is listed below:
Suppose company ABC’s annual assets is 150,000 and liabilities is 80,000, preferred stock 20,000 and common shares 2,000. Shareholders equities- (150,000-80,000)= 70,000
Equity for common shareholders- (70,000-20,000)=50,000
So BV / share is (50,000/2000)=25
- This is GlaxoSmithKline Pharmaceuticals Ltd company’s chart which shows each and every terms and tool to evaluate its market scenario.
So in order to know the market movements fundamentally, one must have knowledge about book value and market value. It is mainly a tool to get an idea about price movements in the secondary market. As BV is the accurate value, there is no space for prediction in calculated book value, but no one can predict market value.