Investors and stock owners use book value per share of common stock to show how much money their shares are worth on the books after all debt is paid off. This amount applies if a company disbands and liquidates its assets and uses the assets pay off liabilities, the remaining amount goes to the common shareholders.
Determine the shareholders' equity and any preferred equity. Shareholders' equity is the total equity of a company. This includes both preferred and common equity. Preferred equity has a claim to dividends and assets if a company dissolves over common equity. Total shareholders' equity will be the last line on the statement of shareholders' equity. A company will disclose preferred equity in the statement of shareholders' equity. For example, on the shareholders' equity section of the balance sheet, the company discloses $100,000 of shareholder equity. Of the $100,000, the company discloses $20,000 of preferred equity.
Determine the total common shares outstanding. Common shares outstanding are shares sold to outside parties. The amount of common shares outstanding is on the company's stockholders' equity section of the balance sheet. In our example, the company has 50,000 shares of common stock.
Subtract preferred equity from total shareholder equity to determine available equity to common shareholders. In the example, $100,000 minus $20,000 equals $80,000 of available equity.
Divide the available equity by the common shares outstanding to determine the book value per share of common stock. In our example, $80,000 divided by 50,000 shares equals a book value per share of common stock of $1.60.
Carter McBride started writing in 2007 with CMBA's IP section. He has written for Bureau of National Affairs, Inc and various websites. He received a CALI Award for The Actual Impact of MasterCard's Initial Public Offering in 2008. McBride is an attorney with a Juris Doctor from Case Western Reserve University and a Master of Science in accounting from the University of Connecticut.