Book Value Per Share

Book value per share is a comparison between the actual value of a business versus the price that people are paying for it.

Book value per share = stockholder's equity/outstanding shares

The book value part of the “book value per share” is the dollar value of the business if they sold everything that they own.

The outstanding shares is the number of shares that the business has outstanding.

Now what do you do with this number?

You compare it to the current price per share of the company.

If the current price is less than the book value per share, then you're paying less for the company than the value the business would be worth if they sold everything. If the current price is more than the book value per share, then you're paying more for the company than the value of the business.

It's important to note that while this may be perceived as getting good value for your investment, there are companies that are worth far more than the price of what they own. Why? Well, it could be a number of reasons, they have a big brand name, they have technology or information that is more valuable than money. These types of assets are called intangible, and don't have a dollar value attached to them.

By comparing the book value per share between other companies in the same industry, a sense for the industry as a whole and the performance of an individual business can be evaluated.