Book value of equity per share is a financial figure that represents the minimum value of a company’s equity with perspective of per share assessment of the company. In order to calculate this value the original value of the common stock of a company that is adjusted for cash inflow and outflow is related to the outstanding share of that company. In the above mentioned explanation the outflow are the dividends issued to the shareholders and the stock buy backs where as the inflows are the retained earnings of the company.
The book value of equity per share is a factor that is used by the investors to find out whether the stock is undervalued or not. However the investor must not only rely solely on this information as this metric only provides a limited view of the current financial situation of a company. Book value of equity per share only provides a quick view or in other words a snap shot of the current financial situation of the company however the future considerations are not included by measuring and studying this metric.
For example let talk about a manufacturing company XYZ that produces electric widgets. The company may have a market share price that is less that the book value of equity per share. However this indicator does not means that the company is undervalued as this indicator only shows the current situation of the company and does not show us the glimpse of future growth opportunities of a company.
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