what does bvps tell you 
the book value of common equity in the numerator reflects the original proceeds a company receives from issuing common equity increased by earnings or decreased by losses and decreased by paid dividends a company s stock buybacks decrease the book value and total common share count stock repurchases occur at current stock prices which can result in a significant reduction in a company s book value per common share the common share count used in the denominator is typically an average number of diluted common shares for the last year which takes into account any additional shares beyond the basic share count that can originate from stock options warrants preferred shares and other convertible instruments example of bvpsas a hypothetical example assume that xyz manufacturing s common equity balance is 10 million and that 1 million shares of common stock are outstanding which means that the bvps is 10 million 1 million shares or 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 if for example the company generates 500 000 in earnings and uses 200 000 of the profits to buy assets common equity increases along with bvps on the other hand if xyz uses 300 000 of the earnings to reduce liabilities common equity also increases the difference between market value per share and book value per sharethe market value per share is a company s current stock price and it reflects a value that market participants are willing to pay for its common share the book value per share is calculated using historical costs but the market value per share is a forward looking metric that takes into account a company s earning power in the future with increases in a company s estimated profitability expected growth and safety of its business the market value per share grows higher significant differences between the book value per share and the market value per share arise due to the ways in which accounting principles classify certain transactions for instance consider a company s brand value which is built through a series of marketing campaigns u s generally accepted accounting principles gaap require marketing costs to be expensed immediately reducing the book value per share 1 however if advertising efforts enhance the image of a company s products the company can charge premium prices and create brand value market demand may increase the stock price which results in a large divergence between the market and book values per share the difference between book value per share and net asset value nav while bvps considers the residual equity per share for a company s stock net asset value or nav is a per share value calculated for a mutual fund or an exchange traded fund or etf for any of these investments the nav is calculated by dividing the total value of all the fund s securities by the total number of outstanding fund shares nav is generated daily for mutual funds total annual return is considered by a number of analysts to be a better more accurate gauge of a mutual fund s performance but the nav is still used as a handy interim evaluation tool limitations of bvpsbecause book value per share only considers the book value it fails to incorporate other intangible factors that may increase the market value of a company s shares even upon liquidation for instance banks or high tech software companies often have very little tangible assets relative to their intellectual property and human capital labor force these intangibles would not always be factored in to a book value calculation correction jan 23 2023 this article has been edited from a previous version that incorrectly stated that debtors are paid after assets are liquidated in fact creditors are paid after assets are liquidated