Definition:

Book Value per Share (BVPS) is a financial measure that represents the equity value of a company on a per-share basis. It indicates the amount of equity available to shareholders after all liabilities have been settled.

Formula:

BVPS = (Total Shareholders' Equity - Preferred Equity) / Total Outstanding Shares

How to use the metric:

Investors use BVPS to assess whether a stock is undervalued or overvalued by comparing it to the market price per share. A stock trading below its book value might be considered undervalued, suggesting potential investment opportunities.

Limitations:

BVPS does not account for intangible assets like brand value or intellectual property, which can be significant for some companies. It also does not reflect the current market value of assets, as it is based on historical cost.

Applies to:

BVPS is most applicable in industries with substantial tangible assets, such as manufacturing, utilities, and real estate, where the book value closely reflects the company's asset base.

Doesn't apply to:

BVPS is less relevant for industries with significant intangible assets, such as technology and service sectors, where the book value may not capture the true value of the company due to the importance of intellectual property and brand value.

Summary:

Book Value per Share is a useful metric for evaluating a company's equity value on a per-share basis, particularly in asset-heavy industries. However, it has limitations in industries where intangible assets play a significant role, as it may not fully capture the company's market value.