Book Value of The Share
Book value of the share: The book value is the value in the company's accounts that if sold to a company, the liabilities from its assets will be reduced by the amount paid per share. The book value of a share can also be derived by dividing the sum of its share capital and the general reserve by the number of total shares.
How to calculate book value: If the company has one crore shares of ten rupees per share, that is, it has started with a share capital of ten crore rupees. Now after a year, the company has earned a profit of Rs 2 crore, then the assets of the company will be twelve crore rupees after one year. Similarly, a profit of two crores (assuming the company has not paid any dividend) will be added to the General Reserve. Now when you divide the capital of the capital and the General Reserve by 12 crores by the number of shares i.e. 1 crore, then the book value per share will get twelve rupees. Similarly, every year when the company earns profit or loss, the book value of the share will increase or decrease.
Book Value Vs Share Price: Generally, the price of a share in the stock market is higher than its book value because the investors buy the shares considering the possibility of future profit. Many times, if the company issues shares at a premium, then that premium is also added to the General Reserve.
Very high book value means the possibility of bonus sharesIf the book value of a share is much higher than its face value, then it means that the general reserve of the company is very large, so there may be a possibility of issuing bonus shares of that company. The General Reserve draws from previous years' profits or premiums for shares sold. Although only the large book value is not the reason for the bonus share, the book value must be higher for issuing bonus shares.
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