If you are currently interested in the stock market and investing, you are most likely looking at the various key figures for shares. These give you a good overview of the financial situation of the respective company. However, it is important that you are able to calculate and interpret these figures correctly.
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Sooner or later, every investor becomes aware of the so-called book value per share. This is a meaningful key figure and can help you make informed investment decisions. In this article, we explain what exactly the term means and how you can calculate the book value per share.
Book value per share - what it is and how to calculate it
When it comes to understanding a company's finances, it is important to know the company's book value. This is an important key figure. It shows how much each share of a company is worth when you divide all of the company's assets by the number of shares.
In other words, it is the amount that shareholders would receive if the company were to liquidate all of its assets and settle all of its liabilities. It is an important metric as it shows the value of the company's underlying assets regardless of the current valuation of the company's share by the market.
To determine the book value per share of a company, you need to understand the company's financial statements. To calculate the book value per share, first determine the company's total equity. This can be found on the balance sheet and is the total value of the company's assets minus its liabilities. Then divide the total equity by the number of shares outstanding. This gives you the book value per share.
Note: The book value per share therefore indicates how much equity is available per share.
Investors use book value per share to determine whether a stock is undervalued or overvalued. If the book value per share is higher than the market price, then the share is probably undervalued and could be worth buying. If, on the other hand, the book value per share is below the market price, the share is probably overvalued and could be worth selling.
Instead of calculating the current book value per share yourself, you can also use the Trader Workstation (TWS) to find out more. (Right-click on a share > Financial instrument information > Description).
How to calculate the book value per share
The book value per share is calculated by dividing equity by the number of shares issued.
Formula: Book value per share = equity / number of shares issued
As you can see, the book value per share can be calculated quickly and easily. Because the book value per share is a common key figure, you can research this value for any share within a few seconds. This saves you the extra work involved in a manual calculation.
In any case, it is still useful to know exactly how the calculation is carried out in order to be able to better interpret and compare the value of this key figure.
Book value per share - A practical example for investors
Assume a company has equity of USD 10 million and has 2 million shares in circulation. The book value per share of the company would then be USD 10 million / 2 million shares = USD 5 per share.
Why is the book value per share important for investors?
Book value per share is an important indicator for investors, as it provides information on how much equity a company has per share. A higher book value per share indicates that the company has a solid financial position and that the share may potentially be undervalued.
However, a low book value per share may indicate a lower financial strength of the company and also that the stock may be overvalued. However, it is important to note that book value per share is only one of many financial ratios and should be considered in combination with other ratios to gain a more comprehensive understanding of the company's financial position.
It is also important to note that book value per share can vary from company to company and industry to industry and therefore should not always be compared directly. A low book value per share may be considered positive in one industry, while it may be considered negative in another.
Note: The interpretation of the book value per share varies from sector to sector.
Conclusion: Book value per share - definition and calculation guide
The book value per share is an important financial indicator that provides information on how much equity a company has per share.
It is important for investors to understand book value per share and look at it in combination with other financial ratios to gain a more comprehensive understanding of a company's financial position. For example, you should consider the other financial ratios such as income statement, cash flow and debt ratio to get a more comprehensive understanding of the company's financial position.
However, you should note that the book value per share can vary from sector to sector. For this reason, only shares from the same sector should be compared directly with each other.
In addition, you should know that the book value per share is calculated based on the shareholders' equity and the number of shares outstanding. A higher book value per share may indicate that the company has a solid financial position, as it has a larger amount of equity per share.
A low book value per share, on the other hand, may indicate that the company has less equity per share and may therefore be less financially stable.
But beware: there can be different interpretations depending on the industry: A low book value per share may be seen as positive in one industry, while it may be seen as negative in another.
In summary, book value per share is an important indicator of a company's financial position, but it is important to look at it in conjunction with other financial ratios to gain a more comprehensive understanding.