The book value per share is obtained by dividing the shareholders' equity by the outstanding shares.
Shareholders' equity represents the residual interest in the assets of a company after all its liabilities have been deducted. In other words, it is the amount of money that would be left over if all the company's assets were sold and all its debts paid off.
Outstanding shares refer to the total number of shares of the company's stock that are currently owned by shareholders and are available for trading in the stock market.
By dividing the shareholders' equity by the outstanding shares, we can determine the book value per share, which represents the amount of shareholders' equity that can be attributed to each share of stock.
For example, if a company has a total shareholders' equity of $10 million and 1 million shares of stock outstanding, the book value per share would be $10 ($10 million divided by 1 million shares). This means that each share of stock represents $10 of the company's net assets.
The book value per share is an important financial metric that investors can use to evaluate the value of a company's stock. It can be compared to the current market price of the stock to determine whether the stock is undervalued or overvalued.