CFA Level IFinancial Statement AnalysisMedium
An analyst is reviewing a company's balance sheet. The company has total assets of $1,000,000 and total liabilities of $600,000. It also has 500,000 shares of common stock outstanding. What is the company's book value per share?
- A$0.80
- B$1.20
- C$2.00
- D$2.40
Show answer & explanationAnswer & explanation
Correct answer: A. $0.80
Book value per share is calculated as (Total Assets - Total Liabilities) / Common Shares Outstanding. First, calculate shareholder equity: $1,000,000 - $600,000 = $400,000. Then, divide by shares outstanding: $400,000 / 500,000 shares = $0.80.
Why the other options are wrong
- B. This incorrectly subtracts liabilities from assets and then divides by a different share count.
- C. This incorrectly divides total assets by common shares outstanding, ignoring liabilities.
- D. This incorrectly divides total liabilities by common shares outstanding.
Book Value Per Share
Book value per share (BVPS) represents the amount of equity attributable to each share of common stock, based on accounting records.
- Reflects the historical cost of assets less liabilities.
- Calculated as (Total Assets - Total Liabilities) / Common Shares Outstanding.
- Often compared to market value per share to assess valuation.
Memory trick: Assets minus debts, then split among the common shares.