Formula to Calculate Book Value of a Company
The Book Value formula calculates the company’s net asset derived by the total assets minus the total liabilities. Alternatively, Book Value can be calculated as the total of the overall Shareholder Equity of the company.
It can be defined as the net asset value of the firm or company that can be calculated as total assets, less intangible assets (goodwill, patents, etc.), and liabilities. Further, Book Value Per Share (BVPS)Book Value Per Share (BVPS)The book value per share (BVPS) formula evaluates the actual value of the common equity for each outstanding share, excluding the preferred stock value. A higher BVPS compared to the market value per share indicates an overvaluation of stocks and viceversa.read more can be computed based on the equity of the common shareholders in the company.
Table of contents
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For eg:
Source: Book Value Formula (wallstreetmojo.com)
How to Calculate Book Value?
The formula states that the numerator part is what the firm receives by the issuance of common equity. That figure increases or decreases depending upon whether the company is making a profit or loss, and then finally, it decreases by issuing dividendsDividendDividends refer to the portion of business earnings paid to the shareholders as gratitude for investing in the company’s equity.read more and preference stock.
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The 1^{st} part will be to find the equity available to its common shareholders. One can question why we’re deducting the preferred stock in the above formula for computing book value per share and average outstanding common stockOutstanding Common StockOutstanding shares are the stocks available with the company's shareholders at a given point of time after excluding the shares that the entity had repurchased. It is shown as a part of the owner's equity in the liability side of the company's balance sheet.read more. The reason for deducting preferred stock from the common equity shareholdersEquity ShareholdersShareholder’s equity is the residual interest of the shareholders in the company and is calculated as the difference between Assets and Liabilities. The Shareholders' Equity Statement on the balance sheet details the change in the value of shareholder's equity from the beginning to the end of an accounting period.read more is that preferred shareholdersPreferred ShareholdersA preferred share is a share that enjoys priority in receiving dividends compared to common stock. The dividend rate can be fixed or floating depending upon the terms of the issue. Also, preferred stockholders generally do not enjoy voting rights. However, their claims are discharged before the shares of common stockholders at the time of liquidation.read more are paid before common shareholders, but only after the companies’ debts are cleared off.
Book Value for the firm = Shareholders Common Equity – Preference Stock
And on the other hand
Shareholder’s common equity = Total Assets – Total Liabilities;
The 2^{nd} part divides the shareholders’ common equity, which is available to the equity shareholders by the unprecedented number of common equity shares.
Book Value, Face Value & Market Value – Video Explanation
Examples
Example #1
Common Equity ltd reports below the number at the closure of its annual books of account. You are required to compute BVPS.
Solution:
First, we need to find out shareholder’s equity which is the difference between Total Assets and LiabilitiesDifference Of Total Assets And LiabilitiesWhat makes Assets & Liabilities different is that while the former refers to anything that a Company owns to gain longterm economic benefits, the latter refers to anything that the Company owes to other parties. read more, which is 53,500,850.89 – 35,689,770.62 = 17,811,080.27
Therefore, the calculation of book value per share is as follows,
BVPS = Total Common shareholders equity – Preferred Stock / Number of outstanding common shares
= 17,811,080.27 /8,500,000.00
BVPS will be –
Example #2 – (SBI BANK)
SBI is one of the leading lenders in India. Vivek, an equity analyst, wants to consider SBI in its portfolio. Suresh recently joined as an intern under Vivek and carried a passion for research. Vivek asks him to compute P/BVPS for SBI and then compare peertopeer. The price of its SBI share is 308.
NOTE: Use the BVPS formula and divide the price by this result.
Solution:
First, we need to find out shareholders equity which is difference of Total Assets and Liabilities (borrowings + other liabilities) which is 36,16,433.00 – (30,91,257.62 + 3,19,701.42) = 2,05,473.96 cr
Therefore, the calculation of book value per share will be as follows,
BVPS = Total Common Shareholders Equity – Preferred Stock / Number of Outstanding Common Shares
= 2,05,473.96 cr/ 892.54 cr
BVPS will be –
P/BVPS will be –
Example #3
Shruti has invested all these years in reliance industries, and now after taking over Hamleys, one of the leading toy store chains, she is curious as to what was the purpose behind it. She anticipates that this could reduce the value of Reliance as it completes an unrelated and unanticipated activity that Reliance has done.
Below is the extract from Reliance industries for March 2018, and she wants to calculate the first book value of Reliance to know what impact Hamleys could create?
Solution
First, we need to find out shareholders equity which is difference of Total Assets and Liabilities (borrowings + other liabilities) which is 8,23,907.00 – (2,39,843.00 + 2,90,573.00) = 2,93,491 cr
Also, we can add Equity Share capital and Reserves to get shareholder’s equity which is 5,922 cr + 2,87,569 cr, which will sum to 2,93,491 cr.
Therefore, the calculation of book value per share will be as follows,
BVPS= Total Common shareholders equity – Preferred Stock/Number of outstanding common shares
= 2,93,491.00 cr /592.18 cr
Book Value Per Share will be –
BVPS= 495.61
Book Value Calculator
You can use this book Value calculator
Total Common Shareholders Equity  
Preferred Stock  
Number of Outstanding Common Shares  
Book Value Ratio  
Number of Outstanding Common Shares = 


Relevance and Uses
As the accounting value of a company, book value can have two core uses:
 It shall serve as the total value of the firm’s or company’s assets that stockholdersStockholdersA stockholder is a person, company, or institution who owns one or more shares of a company. They are the company's owners, but their liability is limited to the value of their shares.read more would theoretically receive if the firm or the company were to be liquidated.
 When a comparison is performed to the company’s market value or market price, book value can be a good indicator to equity analysts of whether the stock price is overpriced – or underpriced.
Hence, the investor needs to have looked upon both the book value or the book price of the company as well as the market price of the stock and then decide on the company’s worthiness.
Recommended Articles
This has been a guide to Book Value Formula. Here we learn how to calculate the book value ratio of a company using its formula along with practical industry examples and a downloadable excel template. You can learn more about financial analysis from the following articles –
 Calculate Price to Book Value RatioCalculate Price To Book Value RatioPrice to Book Value Ratio or P/B Ratio helps to identify stock opportunities in Financial companies, especially banks, and is used with other valuation tools like PE Ratio, PCF, EV/EBITDA. Price to Book Value Ratio = Price Per Share / Book Value Per Share read more
 Formula of Price to Book ValueFormula Of Price To Book ValuePrice to book value is an important measure to see how much equity shareholders are paying for the company's net assets value. It is a market to book ratio and measures the proportion between the market price and the book value per share.read more
 Calculate Book ProfitCalculate Book ProfitBook Profit is the profit amount that a business earns from its operations & activities but has not been realized yet. It is not tracked by analysts or stakeholders & its calculation is relevant only to evaluate a Company’s tax liability. read more
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