Book Value per Share

We say Book Value is the 'Net Asset Value of a company' but there are various definitions of Net Assets

“What do you mean by that?”

1. Book Value is the Net Asset Value of a company. It is a very conservative ‘worst-case’ valuation of what a business would be worth if it had to close down.

Book Value calculation: Total Assets less Intangible Assets less Goodwill less Liabilities.

Book Value per Share ratio: Book Value divided by Number of Shares issued.

Example: The Round Number Company

Goodwill is also an Intangible so it is included in the calculation.

Total Assets = 150; Intangibles = 10; Goodwill = 4; Liabilities = 80

     Book Value Of Business = 150 - 10 - 4 - 80 = 56

If the Round Number Company has issued 100 shares;

     Book Value per Share = 56/100 = 0.56

2. Another definition of ‘Book Value’ does not subtract the value of Intangible Assets (e.g. Goodwill and Intellectual Property). In this situation, Book Value is the same as Equity.

Book Value calculation: Total Assets less Liabilities.

Book Value per Share ratio: Book Value divided by Number of Shares issued.

Total Assets = 150; Liabilities = 80

     Book Value Of Business = 150 - 80 = 70

If the Round Number Company has issued 100 shares;

     Book Value per Share = 70/100 = 0.7

Be sure to know which definition is being used!

 

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