Book Value Formula

Article byHarsh Katara
Edited byAnkush Jain
Reviewed byDheeraj Vaidya, CFA, FRM

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 vice-versa.read more can be computed based on the equity of the common shareholders in the company.

Book Value = (Total Common Shareholders Equity – Preferred Stock) /Number of Outstanding Common Shares.
Book-Value-Formula

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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 1st 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 2nd 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

You can download this Book Value Formula Excel Template here – Book Value Formula Excel Template

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 long-term 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

Book Value Formula Example 1

Therefore, the calculation of book value per share is as follows,

Book Value Formula Example 1.1jpg

BVPS  =  Total Common shareholders equity – Preferred Stock /  Number of outstanding common shares

= 17,811,080.27 /8,500,000.00

BVPS will be –

Book Value Formula Example 1.2jpg

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 peer-to-peer. 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

Book Value Formula Example 2.1

Therefore, the calculation of book value per share will be as follows,

Book Value Formula Example 2

BVPS =  Total Common Shareholders Equity – Preferred Stock / Number of Outstanding Common Shares

= 2,05,473.96 cr/  892.54 cr

BVPS will be –

Example 2.2

P/BVPS will be –

Example 2.3

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.

bvps Formula Example3

Therefore, the calculation of book value per share will be as follows,

bvps Formula Example3.1jpg

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 –

Example3.2jpg

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 =
Total Common Shareholders EquityPreferred Stock
=
Number of Outstanding Common Shares
00
= 0
0

Relevance and Uses

As the accounting value of a company, book value can have two core uses:

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 –