Hey Everyone, | Arshnoor Singh

Hey Everyone, Did you all understood Book Value per Share? If not, let's understand it with the help of an example. XYZ Manufacturing’s common equity balance is Rs.10 million, and that 1 million shares of common stock are outstanding. This means that the BVPS is (Rs.10 million / 1 million shares) or Rs.10 per share.

If XYZ can generate higher profits and use those profits to buy more assets or reduce liabilities, the firm's common equity increases.

For example, the company generates Rs.500,000 in earnings and uses Rs.200,000 of the profits to buy assets, common equity increases along with BVPS. If XYZ uses Rs.300,000 of its earnings to reduce liabilities, common equity also increases.

Another way to increase BVPS is to repurchase common stock from shareholders. Many companies use earnings to buy back shares. Using the XYZ example, assume that the firm repurchases 200,000 shares of stock and that 800,000 shares remain outstanding.

If common equity is Rs.10 million, BVPS increases to Rs.12.50 per share. Besides stock repurchases, a company can also increase BVPS by taking steps to increase the asset balance and reduce liabilities.