What Is Book Value Per Share? How It Is Computed From a Nigerian Balance Sheet and What It Leaves Out

Book value per share is a company's total equity attributable to its ordinary shareholders, as stated on its balance sheet, divided by the number of ordinary shares in issue at the balance sheet date. It expresses, in naira per share, what the company's accounts say would be left for each share if every asset were realised at its book value and every liability paid. Nigerian listed companies do not usually print the figure themselves, but everything needed to compute it is in the audited financial statements they file with the NGX.

How Book Value Per Share Is Computed

The numerator is the equity that belongs to the ordinary shareholders of the parent company. On a Nigerian statement of financial position this is the line usually labelled "Total equity attributable to owners of the company" or "Equity attributable to equity holders of the parent". It is the sum of share capital, share premium, retained earnings and the other reserves, less the cost of any treasury shares the company holds. Two things are excluded: non-controlling interests, which belong to outside shareholders in subsidiaries, and preference share capital, if the company has any, because preference shareholders rank ahead of ordinary shareholders.

The denominator is the number of ordinary shares in issue at the balance sheet date, less any treasury shares. Unlike earnings per share, which uses a weighted average across the year, book value per share is a point-in-time figure and uses the point-in-time share count. The number of shares is stated in the share capital note to the accounts. Most Nigerian companies also show it on the Daily Official List and in the company profile on the NGX website.

As an illustration with invented figures: a company whose accounts show equity attributable to owners of ₦50 billion and 10 billion ordinary shares in issue has a book value per share of ₦5.00. If the same company had ₦2 billion of non-controlling interests inside its total equity of ₦52 billion, the ₦2 billion is left out and the answer is still ₦5.00.

Where the Figures Come From in a Nigerian Annual Report

• Statement of financial position: gives total equity and splits it between owners of the parent and non-controlling interests. Use the group (consolidated) figures if the company has subsidiaries.
• Statement of changes in equity: shows how each reserve moved during the year, which explains why book value rose or fell.
• Share capital note: states the authorised and issued share capital, the nominal value of each share and the number of shares in issue. The nominal value of many Nigerian shares is 50 kobo, and this is the "Public Quotation Price" shown on the NGX Daily Official List. It is not the book value and not the market price.
• Treasury shares note, if there is one: shares the company has bought back and still holds are deducted from both equity and the share count.

What Book Value Captures

Book value is the accounting record of the capital shareholders put in plus the profits the company has kept, adjusted for the gains and losses the accounting standards route through reserves. It rises when the company makes a profit and retains it, when it issues new shares for cash in a rights issue or placement, and when assets carried at revalued amounts are written up. It falls when the company makes a loss, pays a dividend, buys back its own shares, or writes assets down. A bonus issue moves an amount from reserves into share capital without changing total equity, but because the share count rises, book value per share falls in proportion.

Because it is built from the balance sheet, the figure reflects the accounting policies the company uses. Property, plant and equipment may be carried at historical cost less depreciation or at a periodically updated valuation. Banks carry most of their assets as financial instruments measured closer to current values, while a manufacturer's factory bought decades ago may sit in the accounts at a fraction of what it would cost today. Two similar businesses can therefore report very different book values purely because of the policies they have chosen.

What Book Value Does Not Capture

• Internally generated intangible assets: brands, licences the company built rather than bought, customer relationships and know-how are generally not recognised on a balance sheet, so a company whose value lies mostly in such things can have a small book value.
• Current market values of assets carried at cost: land, buildings and long-held investments may be worth much more or less than their carrying amount.
• The effect of inflation and naira devaluation: assets bought years ago are carried at the naira cost of the day, so book value can understate replacement cost in a period of rising prices.
• Purchased goodwill: when a company buys another for more than its net assets, the excess sits in the balance sheet as goodwill. It is included in equity but may not be realisable.
• Contingent liabilities and off-balance-sheet commitments, which are disclosed in the notes but not deducted.
• Future earnings: book value describes what has been accumulated, not what the business will earn.

Book Value and the Share Price

The share price on the NGX is set every trading day by buyers and sellers. Book value per share changes only when new accounts are published, which for Nigerian listed companies is each quarter and each year end. Dividing the market price by book value per share gives the price-to-book ratio, which describes how the market price relates to the accounting equity. The ratio varies widely between sectors, because accounting policies and the kinds of assets involved vary so widely, and it is distorted by everything listed above. No level of book value per share, or of the price-to-book ratio, is in itself favourable or unfavourable; what a figure means depends on the company, its sector and how its assets are measured.

Book Value Per Share: FAQs

Is book value per share the same as the nominal or par value?

No. The nominal value, often 50 kobo for Nigerian shares, is the amount fixed when the shares were created and appears in share capital. Book value per share includes share premium, retained earnings and other reserves as well, so it is usually a different figure altogether.

Can book value per share be negative?

Yes. If accumulated losses exceed the capital and reserves, total equity is negative and so is book value per share. The accounts will show a deficit in retained earnings, and the directors' report and the auditor's report usually comment on it.

Do I use the year-end share count or the weighted average?

The year-end count. Book value is a balance at a date, so it is matched with the shares in issue at that date. The weighted average is used for earnings per share, which measures a flow over a period.