How To Calculate Book Value

In my quest to find dividend paying stocks at reasonable prices, I tend to look at several metrics.

These include shareholder yield, dividend yield, average dividend yield, and P/E ratios. I also like to take a look at a company’s book value, or what the company is “worth” on paper.

Here is an explanation of book value from Investopedia that I found especially informative.

The quickest way to calculate BVPS is to look at the equity section (on the bottom right) of a company’s balance sheet and think about what the common shareholder actually owns – common stock outstanding and retained earnings. The good news is that the number is clearly stated and usually does not need to be adjusted for analytical purposes. As long as the accountants have done a good job (and the company’s executives aren’t crooked) we can use the common equity measure for our analytical purposes.

For example, Wal-Mart’s January 31, 2006 balance sheet indicates that shareholder’s equity has an accounting value of $53.2 billion. The number is clearly stated as a subtotal in the equity section of the balance sheet.

To calculate BVPS, you need to find the number of shares outstanding, which is also usually stated parenthetically next to the common stock label (if it’s not there you should be able to find it in a note to the financial statements).

What we’re looking for is the number of shares outstanding, not simply issued. The two numbers can be different, usually because the issuer has been buying back its own stock.

In this case, the shares outstanding number is stated at 4.2 billion, so our BVPS number is $53.2 billion divided by 4.2 billion, which equals to $12.77. Each share of common stock has a book value – or residual claim value – of $12.77.

At the time Wal Mart’s 10-K for 2006 came out, the stock was trading in the $49 range, so the P/BVPS multiple at that time was around 3.8x.’

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