Book Value Per Share Homework Help

Book Value Per Share

represents the equity/claim of the equity shareholder on a per share basis. It is computed dividing net worth (equity share capital + reserves and surplus -accumulated losses) by the number of equity shares outstanding (at balance sheet date), as shown in Equation 7.40)

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This ratio is sometimes used as a benchmark for comparisons with the market price per share. However, the book value per share has a serious limitation as a valuation tool as it is based on the historical costs of the assets of a firm. There may be a significant difference between the market value of assets from the book value of assets (as per balance sheet). Besides, there may be hidden assets or other intangible assets of uncertain value.

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