BOOK VALUE PER SHARE
Book
value per share means value of each share as per books of accounts. In simple
words the book value of stock is the value of the assets applicable as shown in
balance sheet to each share of company. The
book value per share is computed by following methods :-
Book Value Per Share
= Common stock + Reserves & . Surplus - Intangibles
__________________________
No of shares.
No of
shares issued can be easily found in balance sheet. But how to compute
shareholder funds. There are various ways of computing Book value of shares as
follows :-
Shareholder
funds = Equity Share Capital +
Preference Share Capital + Reserve & Surplus
Share
holder funds = Total Assets -
Liabilities
Share holder funds& liabilities
|
ASSETS
|
Shareholder funds xxxxxxxx
Liabilities
xxxxxxxxx
|
FIXED ASSETS
XXXXXX
CURRENT ASSETS XXXXXXX
|
TOTAL
|
TOTAL
XXXXXXX
|
Liabilities
are shown at a value which is an entity is liable to pay in future. It means
they are shown at market value.
Assets
are shown at book value or market value that depends on the accounting policy adopted by company. The accounting
policy is adopted as per accounting standard adopted by company. The listed
entities follows IND AS.
In
order to analyze fundamentals of company we need to understand the IND AS followed
by the company. We will learn about IND AS later on.
Now we
would come back at our second formula, it has two components
1
Liabilities are shown at Market value.
2.
Assets are shown as per IND AS that requires detail analysis so we should learn
INDAS in understanding INDAS
IMPORTANCE
OF BVPS
Now lets understand the importance of Book value per
share. There are indeed certain assumptions in
favour of shares purchased at a price far below asset value and against those shares purchased at a higher price than
asset BVPS . (It is assumed that in the ordinary case the book figures represents
the cash value that an entity would realise after selling it as going concern).
A business
that sells at a premium as company can earn higher returns
on its capital employed this large
return attracts competition, and, generally speaking ,it is not likely to
continue indefinitely. Conversely in the case of a company selling at a very less price than asset value because of low earnings than it peers. The absence of new
competition, the withdrawal of old competition from the field, and other
natural economic forces may tend eventually to improve the situation and
restore a normal rate of profit on the investment.
If a share is dealing far above than BVPS then
it can be a risky term to enter in market. But now a days all shares deal well above than BVPS, due to
entry of huge sums of money in stock market. there fore importance of BVPS have reduced
significantly. There are various ways of comparing COMPANIES using book value for
example Price to book value ratio, etc.
Now
lets see some practical example
PRACTICAL
APPROACH
Basic EPS (Rs.)
|
7.45
|
18.43
|
15.78
|
60.62
|
Diluted Eps (Rs.)
|
7.38
|
18.06
|
15.35
|
59.31
|
Cash EPS (Rs.)
|
7.43
|
19.35
|
76.70
|
63.02
|
Book Value [Excl. Reval Reserve]/Share (Rs.)
|
116.21
|
111.85
|
483.13
|
327.84
|
Book Value [Incl. Reval Reserve]/Share (Rs.)
|
116.21
|
111.85
|
483.13
|
327.84
|
Dividend/Share (Rs.)
|
2.00
|
2.70
|
12.00
|
10.00
|
Operating Revenue / Share (Rs.)
|
127.97
|
88.01
|
359.81
|
321.82
|
Net Profit/Share (Rs.)
|
7.43
|
18.34
|
72.95
|
60.39
|
The
above picture shows BVPS OF YES BANK OF different years. It can be used to analyses that there
is fall from 4th to 3rd year. It shows significant fall
in book value of share, which shows that there is significant fall in profits
and reserves of the company.
Now
Lets see valuation ratios of yes bank
Valua
|
| Valuation Ratios | |||||
| Enterprise Value (Rs. Cr) | 388,912.00 | 334,423.44 | 245,242.68 | 173,959.41 | 146,265.84 |
| EV Per Net Sales (X) | 13.13 | 16.50 | 14.93 | 12.85 | 12.64 |
| Price To Book Value (X) | 2.37 | 2.73 | 3.21 | 2.64 | 2.92 |
| Price To Sales (X) | 2.15 | 3.46 | 4.31 | 2.69 | 2.95 |
| Retention Ratios (%) | 100.00 | 87.00 | 100.00 | 83.44 | 81.25 |
| Earnings Yield (X) | 0.03 | 0.06 | 0.05 | 0.07 | 0.06 |
 | |||||
| Source : MONEY | |||||
We will
learn about fundamentals later on in coming posts.
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