Book Value Per Share (BVPS)

What is BVPS?

Book value per share (BVPS) measures a company’s net asset value on a per-share basis. It represents the amount attributable to common shareholders if the company sold its tangible assets and paid all liabilities.

Formula

BVPS = (Total Equity − Preferred Equity) / Total Shares Outstanding

Notes:
* Total equity (shareholders’ equity) is assets minus liabilities.
* Preferred equity is subtracted because preferred shareholders have priority claims over common shareholders.

Why it matters

• Valuation signal: Comparing BVPS to the market price helps investors assess whether a stock is undervalued or overvalued. If BVPS > market price, the stock may be undervalued.
• Liquidation benchmark: BVPS approximates what common shareholders might receive in liquidation.
• Insolvency indicator: Negative book value (liabilities exceed assets) signals balance-sheet insolvency.

Example

Assume a company has common equity of $10,000,000 and 1,000,000 common shares outstanding:
* BVPS = $10,000,000 ÷ 1,000,000 = $10.00 per share.

If the company repurchases 200,000 shares (reducing outstanding shares to 800,000) and equity remains $10,000,000:
* New BVPS = $10,000,000 ÷ 800,000 = $12.50 per share.

Ways BVPS can increase

• Retaining earnings to acquire assets (increases equity).
• Using earnings to pay down liabilities (increases equity).
• Share repurchases (reduces shares outstanding, raising BVPS per share).

Limitations and differences from market value

• Historical costs: BVPS is based on accounting/book values (historical costs) and may not reflect current market values for assets.
• Forward-looking value: Market price reflects investors’ expectations about future earnings, growth, and intangible assets (brand, intellectual property) that BVPS may not capture.
• Arbitrage caveat: In theory, if market price is well below BVPS, an acquirer could profit by buying and liquidating assets, but practical frictions (transaction costs, asset illiquidity, legal constraints) often prevent risk-free arbitrage.

Key takeaways

• BVPS = (Total Equity − Preferred Equity) / Shares Outstanding.
• It provides a per-share measure of a firm’s net asset value and a benchmark for liquidation value.
• BVPS is useful for spotting potential undervaluation but should be used alongside other metrics because it relies on historical accounting values and omits many sources of future value.

Bottom line

BVPS is a straightforward accounting-based measure that helps investors compare a company’s book value to its market valuation. Use it as one input in a broader valuation and due-diligence process rather than as a standalone investment signal.