Investing school - Book value per share

The book value per share is the value per share reflected on a company's balance sheet. It can be calculated as follows:

Stockholders Equity - Preferred Stock

Average Outstanding Shares

On most stock markets, it is rare for a stock to trade below its book value. A stock trading below its book value is often associated with a company in serious financial distress.

Comparing the share price to the book value per share may indicate whether a stock is under or overvalued. In the absence of evidence of severe financial distress, a stock trading below its book value tends to indicate an undervalued stock.

From a Caribbean perspective, we often observe healthy companies trading below book value. This is likely due to the low level of trading on our markets and the consequent poor price discovery.

Investors would be advised to be wary of selling their stocks at below book value.

justin.robinson@cavehill.uwi.edu