- 1). Walk through an example. Let's say that on Jan. 1 the balance sheet shows that shareholders' equity has a value of $50 billion. This is found on the balance sheet.
- 2). Determine the number of shares outstanding. This is usually stated next to the common stock line item on the balance sheet. If not, look for the number in the notes to the financial statements. You want the number of shares outstanding, not issued. Let's say the shares outstanding number is 5 billion.
- 3). Calculate BVPS (book value per share). The calculation is: $50 billion / $5 billion = $10. This means that each share of common stock has a book value of $10.
- 4). Compare this to the current stock price for a price/BVPS multiple. For instance if the current stock price is $30, then the price to BVPS multiple is $30/$10 = 3. The higher the multiple the greater the difference between book and market value. A high multiple compared with those of other companies in the same industry indicates that the stock may be expensive or overvalued in the market.
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