book value per share
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Suppose a company were closed down today, every debt paid, and what remained were handed to the owners and split evenly among the shares. Roughly how much would each share collect, according to the accounting records? That accounting-based figure is book value per share: the owners' equity that backs each single share of common stock, taken straight from the books.
Book value per share is computed by dividing total common stockholders' equity by the number of common shares outstanding. If preferred stock exists, its claim is first subtracted, because book value per share refers to common stock. For example, a company with common stockholders' equity of 6,000,000 and 500,000 common shares outstanding has a book value of 12 per share (6,000,000 divided by 500,000). It uses shares outstanding, not authorized or issued shares, and it reflects accounting values — assets and liabilities as recorded — not current market prices.
Book value per share matters as a rough floor or reference point, and investors compare it with the market price (the price-to-book ratio) to gauge how the market values a company relative to its accounting net worth. The crucial caveat is that book value is not market value and is often a poor estimate of what a share is truly worth. It rests on historical-cost accounting, so it can understate valuable assets like brands, patents, and skilled teams that the books barely record, while also ignoring what the business might fetch if sold as a going concern. A high or low book value per share says little, by itself, about whether a stock is a good investment.
A company has common stockholders' equity of 6,000,000 and 500,000 common shares outstanding. Book value per share is 6,000,000 / 500,000 = 12. If the stock trades at 30, its price-to-book ratio is 30 / 12 = 2.5, meaning the market values it well above its accounting net worth.
Common equity divided by shares outstanding — an accounting figure, not a market price.
Book value per share rests on historical cost, so it often differs greatly from market value and may ignore valuable intangibles like brands and patents. It is a reference point, not a verdict on whether a stock is worth buying.