Book value per share
Book value per share represents the right to each share of stock to the net assets of the company. It can be calculated as the total shareholders’ equity divided by the number of shares of common stock outstanding. It preferred stock is present, stockholders’ equity must be adjusted to reflect its liquidation. The stock market value represents the price at which the stock is currently selling.
Users of the financial statements are often interested in computing the value of the corporate nation. This is the difficult task because the value is not well-defined terms and means are different things are different users. One measure of value is the book value of the stock. Book value per share of the common stock represents the rights that each share of common stock has to the net assets of the corporation. The net assets are defined as total assets of the firm minus total liabilities.
Book value per share= Total stock’s holder equity- preferred equity share/ number of shares of outstanding
The book value per share is the amount per share of net assets to which the company’s common stocks have the right. Book value per share does not indicate the price that should be paid by those who want buy or sell the stock on the stock exchange.
XYZ chemical company has $15, 000,000 of stockholders equity, $3, 000,000 preferred stock and 2,000,000 numbers of shares outstanding at the time of measurement. The calculation book value per share is as follow
Book value per share = Total stock’s holder equity- preferred equity share / number of shares of outstanding
= 15, 00,000-3, 00,000/ 2,000,000
= 12, 000,000/2,000,000
= $6.00 per value per shares