Book Value Per Share Defined

What is Book Value Per Share?  Book value per share is a method of valuing a company.  In its simplest form, book value per share looks at the total equity of a company on a per share basis.  To calculate book value per share you take total assets less total liabilities of a company.  That is total equity.  Divide that figure by total shares outstanding and this gives you the per share ratio of total equity.  If you are learning how to invest in stocks you are going to want to know what book value per share is.  This amount shows what the assets of a company are worth on a per-share basis.  The idea is that a stock should not trade below its book value.  The reason is that book value could be converted to cash via debt.  Theoretically, the stock price of a stock should not be below this value.

However, from time-to-time, a company’s stock will fall below its book value.  For some investment strategies, this could be a buy signal to enter into the market in the hopes that the market will realize this value in a stock.

For a better understanding on price ratios, I have a full breakdown on the Value Investing Video Course – Understanding Per Share Ratios.

How To Calculate Book Value Per Share

Looking in a company’s financial statements, specifically in the balance sheet, a stock analyst would find total assets.  Next, find total liabilities.  Subtract total liabilities from total assets.  This gives total equity.  Finally, find the total shares outstanding for the stock.  Divide the total equity by the total shares outstanding.  This shows what the value of the equity is as a ratio on a per share basis.

To get a better understanding of when to use Book Value Per Share, make certain to watch the complete video series on Stock Market For Beginners – How to Invest In Stocks.

How to Use Book Value Per Share

Once you have the book value per share, you can then compare the stock price to the book price.  Should the book price be above the current stock price, from a book value valuation model, the stock price is considered undervalued.  The theory is that management could sell off all of its assets and distribute the cash proceeds to shareholders.  This would drive the stock price upward.

However, if book value per share is below

Book Value Per Share Example

In a recent video, I looked at the book value per share of Halo Collective. Halo Collective, in its December 2021 financial statement, listed $66M in total equity.  Halo Collective has ~27.2M shares outstanding.  This gives a book value of approximately $2.41 per share.  But, HCANF stock was trading at a mere $0.23 per share.  Theoretically, Halo Collective HCANF stock was trading below book value.

However, at the same time, Halo Collective HCANF stock owns some 12M shares of the recently publicly traded Akanda AKAN stock.  AKAN stock was currently trading at $8.96 per share.  With the 12M shares that Halo Collective had as assets, this put the value of that holding alone at ~$135M.

Halo Collective initially put the deal for selling Akanda as a separate entity in November of 2021.  The deal was for some ~13M shares of what would be the newly created, and separate company Akanda. The 13M shares were sold for $1.00 per share brining in $13M in working capital for Akanda.  At the time, Halo Collective’s holdings represented ~68% of the newly created Akanda company.

Akanda Goes Public

Afterward, Akanda went public in a very successful.  4 million shares were issued at $4.00 per share to raise some $16M in working capital for the newly created Akanda company.  But, AKAN stock, traded on the Nasdaq stock exchange, surged to nearly $30.00 par share.  The recent stock price of ~9.00 was the end result of where AKAN was trading.  This created the extra value for Halo Collective.  But, this would not be reported in financial statements until later on by Halo Collective.

Given the combined equity of Halo Collective as well as the Akanda AKAN stock holdings, Halo Collective’s book value should be ~$6.61 per share.

What is Intrinsic Value

It is important to note the distinction between book value and intrinsic value.  Book value is a straight-line mathematical calculation looking at assets, liabilities, and the market valuation of a company.  But, intrinsic value factors in other aspects of a company.  And, there is no set methodology of determining what the intrinsic value of a company is.

Copyright Cannabis Investing Newsletter 2021 - 2022