Book value per share
Common shareholders' equity divided by shares outstanding, the denominator of the P/B ratio. A buyback at a price above it lowers it for the holders who remain; one below it raises it.
Where you will meet it
Book value per share appears in 5 learning outcomes on the CFA syllabus. A few of them:
- Work out dividend yield and alternative price multiples and explain what they mean
“Price to book divides price by book value per share, where book value is total equity less preferred equity, divided by common shares outstanding.”
- Explain the expected impact on shareholder wealth and on a company's financial ratios of cash dividends (regular, extra or liquidating), stock dividends, reverse stock splits and stock splits
“Stock dividends, splits and reverse splits only change the share count: price per share moves inversely, a 10% stock dividend divides the price by 1.10, and market value, wealth and balance-sheet ratios are unchanged, while per-share figures such as EPS, DPS and book value per share adjust for the new share count.”
- Work out underlying earnings and explain them, set out ways to normalise earnings per share (EPS), and compute normalised EPS
“The average return on equity method multiplies the average ROE over the cycle by current book value per share.”
- Value a common share with the residual income model and contrast when value is recognised under it and under other present value models
“Intrinsic value equals current book value per share plus the present value of expected future residual income: V0 = B0 + sum of RIt ÷ (1 + r)^t, where RIt = Et − r × B(t−1).”
Practise it
Practise book value per share until it is automatic: questions that explain every wrong option.
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