Book value per share is a value that common stock holders would have received if all assets of the firm were sold for its accounting value and if all liabilities were settled and residual value divided among common stock holders.
In other words, it is a book value of the firm (the net worth of the company, which is assets minus liabilities) divided by the number of shares of common stock outstanding.
The following formula used to calculate book value per share:
Book value per share = TA-TL/Number of shares of common stock outstanding
Where TA is Total Assets and TL is total liabilities.
This method is criticized because it relies on historical data and does not take into account the future expected earnings of the firm. Therefore, it does not reflect the real market value of the firm.
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