Posted: October 17th, 2013
Book value per share is an accounting measure used by the owners or stakeholders in determining the value of each share after all debts or liabilities are paid. It tells the safety level of the shares or what they would be worth if the company was to dissolve. Book value per share is calculated by the formula shown below when there company has preferred stock outstanding:
Book value per share == total shareholders equity – preferred equity
Total outstanding shares
Proffered equity is subtracted from the total shareholder equity before dividing by the number of shares, since it qualifies for dividends, and it is not part of the common shares. Fr a company without outstanding arrears in preferred equity, calculation of the book value per share is directly gotten by dividing the total shareholders equity by the number of shares (Needles, Powers & Crosson, 2010). The total shareholders equity for Hoover Inc will be calculated as follows by subtracting the total assets from total liabilities.
The total assets == current assets + fixed assets
== $ 360,000 + $ 640,000 = $1,000,000
Total liabilities == $current liabilities + long-term liabilities
== $ 90,000 + $ 160,000 = $250,000
Total shareholders equity == $ 1,000,000 – $ 250,000
== $ 750,000
Book value per share for Hoover Inc == $ 750,000- $90,000
== $ 660,000
== $ 66 per share
The book value per share for Hoover Inc is 66 dollars, meaning that this is the net worth of each common share after all the liabilities are paid. If Hoover Inc were to dissolve, the shareholders would stand to be paid $ 66 for each of their shares. However, this may not be the case considering other costs will have to be considered such as depreciation, since the assets are recorded on historical value (Needles, Needles & Powers, 2010).
Needles, B.E., Powers, M., & Crosson, S.V. (2010). Principles of Accounting. New York, NY: Cengage Learning.
Needles, Needles, B.E., & Powers, M. (2010). Financial Accounting. New York, NY: Cengage Learning.
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