I've read a whole bunch of articles (eg: BVPS Definition) and all of them say BVPS is calculated using a formula similar to this:

(total shareholder's equity - preferred equity) / total outstanding shares

Correct me if I'm wrong but I'm assuming that this formula is for common shares? (articles didn't specify) But if you were to try to find the ratio of equity available to common shares to the number of shares wouldn't it be more logical to divide it by outstanding common shares instead of total outstanding shares? Or does outstanding shares only include common shares? The reason I get the idea that it'd be more logical is cause when I searched up how BVPS for preferred shares is calculated it shows this formula:

equity available to preferred shares / outstanding preferred shares

So is it that the former formula (for common shares) assumes total outstanding shares to be understood as "total" common shares outstanding

1 Answer 1


wouldn't it be more logical to divide it by outstanding common shares instead of total outstanding shares?

Yes, with possibly some adjustments, and that's what the formula uses for "total shares outstanding". The article even specifies this:

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.

Note that the "additional shares" from, say, preferred shares aren't the outstanding preferred shares, but the equivalent number of common shares that preferred shares might be converted to under certain circumstances. Similarly for employee stock options, the shares to include in the denominator would include the number of common shares that would be created if the options were exercised.

  • if we were to take into account the convertible instruments (for the outstanding shares) wouldn't we also have to increase the equity available for common shares? Or does the common share equity not change even if the number of common shares increased? And also by "average number of diluted common shares" is the article talking about weighted average shares outatanding?
    – piny
    Jul 28, 2021 at 23:10

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