So shareholders equity is total assets - total liabilities while book value is tangible assets - total liabilities. But apparently book value in practice could also just be total assets - total liabilities (here intangible assets are also included). Is this the case in the BVPS formula - (total shareholder's equity - preferred equity) / total outstanding shares) - since the formula just specifies total shareholders equity and not book value? The reason I'm confused is cause of the name (of BVPS) which I assumed implies we use the strict definition of book value.
1 Answer
Shareholder equity = Book value (tangible+intangible)
Shareholder's equity is the remaining assets available to investors once all liabilities have been paid.
It's calculated as:
Book Value = Shareholder Equity = Total Assets – Total Liabilities
And thus:
BVPS = (Total Assets – Total Liabilities)/(shr outstanding)
Book value (tangible)
Book value (tangible) is:
Book Value (tangible) = Total Assets – Intangible Assets – Total Liabilities
= Tangible Assets – Total Liabilities
Following,
Tangible BVPS = (Tangible Assets – Total Liabilities)/(shr outstanding)
But apparently book value in practice could also just be total assets - total liabilities
That is the definition of "book value", but isn't "tangible book value", unless Intangible Assets = 0.
(here intangible assets are also included)
They shouldn't be for Book value (tangible).
Answer question
The reason I'm confused is cause of the name (of BVPS) which I assumed implies we use the strict definition of book value.
You're confused because there are actually two different BVPS variants:
- BVPS
- Tangible BVPS
It's even on Seeking Alpha in the Supplemental Items section of stocks' balance sheet:
addendum: usually, BVPS (rather than intangible BVPS) is used to compute P/B.
