How do I calculate shares? Book value and market value of shares Determination of the book value of shares

Book value - share

Page 1

The book value of a share is defined as the stated value per share.

The book value of shares is the value determined according to the balance sheet data by dividing own sources of property by the number of issued shares.

The book value of the shares is the ratio of the volume (rubles) of the net assets of the joint-stock company to the number of paid-in shares. Balansova

The book value of a share is the share of the company's own (share) capital per ordinary share. Share capital consists of the nominal value of shares, share premium (the difference between the market price of shares at the time of their sale in the primary market and their nominal value) and the share of profit accumulated and invested in the development of the company.

The book value of a share is also applied to the listing of shares.

The book value of shares, which is determined according to the balance sheet data by dividing own sources of property by the number of issued shares.

The book value of shares is determined on the basis of the company's financial statements. Their comparative value is based on the comparison of stock returns with returns on deposits.

The book value of shares is determined according to the balance sheet data by dividing own sources of property by the number of issued shares.

The book value of a share is a price figure that is calculated by dividing the total net asset value (assets minus liabilities) by the total number of shares in issue. Depending on accounting methods and the age of assets, this ratio can be very useful in determining whether a stock is overvalued or undervalued.

Book value per share

If a stock is selling at a price far below its book value, it is likely undervalued.

The book value of the company's shares is $83 million.

USD Torstein is a cyclical business with an expected EVGG of $2m.

The book value of the sold shares is written off - 2,000,000 rubles. D - t c.

The book value of the shares sold is written off (D - t c.

The book value per share (BVPS) is defined as the ratio of shareholders' funds to the number of issued shares.

The book value of a share refers to the amount of the company's net assets per share.

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The share has a nominal, redemption, balance, liquidation, market price

The par value of a share is its face value indicated on the share. This value does not have any significant meaning, since the par value does not characterize either the level of dividends or the value of the share in the event of liquidation of the company. This price matters only when organizing a joint-stock company. It shows what share of the authorized capital accounted for one share at the time of creation. AO. But already with subsequent additional issues of shares, the price of their sale may differ from the nominal value.

revocable preferred shares have a redemption value (revocable shares are shares that the issuer can redeem regardless of the desire of the investor). It is announced at the time the shares are issued. Usually the redemption price exceeds the face value by 11%.

The book value of a share is the value of a company's equity per share. If only ordinary shares were issued, this value is determined by dividing equity by the number of shares. If preferred shares are also issued, then equity must be reduced by the total value of preferred shares at par or redemption price (for callable shares).

For example, the equity capital of a joint-stock company (share capital plus retained earnings for all years) is $3,520,000.

3 Basic calculation formulas for solving stock problems

giving preference to callable shares with a face value of $50, the redemption price is $50.5 per share.

The redemption price of all preferred shares is 505 thousand dollars (50.5 o 10,000). Then the book value of all ordinary shares will be $3,015 thousand (from $520,000 to $505,000), and one share will be $30.15.

The liquidation price is the value of the property being sold. AO at actual prices per share

The market price, or share price, is the price at which shares are freely bought and sold in the market. The par value of the share does not matter, and a share of a lower par value can be sold at a higher price. E. For an investor, it is important how much profit a share makes at the moment and what are the prospects for making a profit in the future.

Calculation of the market value of shares

Calculating the market price of a stock is much more difficult than a bond. Shares are securities with a floating income, unlike bonds, where the income is either fixed or changes with a certain pattern. Various models are used to calculate stock prices, the most common of which is the model. M. Gordon. This model assumes three options for calculating the current market price of a share.

1. Dividend growth rate (a) is zero. Zero Growth Model. The current market price of a share (P0) is determined by the formula

where 2) 0 is the current dividend, g u;

The company pays a yearly dividend of 3 um from per share. The required rate of return on shares is 12%. Determine share price

The question is how the rate of return required by an investor is determined. First of all, it should be compared with the risk-free interest rate. If the interest rate on risk-free contributions becomes, for example, 10% per year, then the investor, when investing in shares, seeks to receive a higher percentage, since buying shares is a risky business, depending on how risky it is to invest money in buying certain shares, and determine the acceptable rate of return. So, the acceptable rate of return is equal to the sum of the risk-free interest rate and the risk fee, and if in the above example the investor estimated the risk fee at 2% per annum on the investment amount, then the acceptable rate of return would be 12% per annum.

2. The growth rate of dividends is constant ] = const). Constant Growth Model

where I)] is the amount of the dividend for the nearest forecast period, g from

Example 910

The company last paid a dividend per share of 1.8 um. The company expects its dividend to increase by 6% annually. Determine the stock price if the required rate of return, pr. weaving, is 111%.

3. Dividend growth rate changes (const). Variable Growth Model

where. P — discounted value of forecasted dividends for the first (final) period of time lasting n years, g u;

P is the discounted value of the next infinite series of dividends, reduced to the point in time, which corresponds to the end of the n-th year, gr from

To calculate the first component, it is necessary to discount all dividends planned for payment during the first years (usually not more than the next five years, which makes it possible to make a more or less plausible forecast of dividend payments)

The calculation of the second component for constant dividends is made according to the formula for discounting infinite dividends

If it is assumed that dividends will grow at a rate, then it is necessary to use the formula of the constant growth model:

Usually, as an indicator of profitability, r is used to estimate the profitability of the enterprise, observed during the last year. This return is determined by two components: the return on investment. Estor, received in the form of dividends (the amount of the dividend paid over the last year, divided by the market (market) value of the share at the moment) and the investor's profitability associated with an increase in the market value of the share (an increase in the market value of the share for the year, divided by the market value in beginning of the year).

Adding the above components, we get the return on the stock

Example 911

The company paid UAH 0.52 in dividends for the last year over the next three years, the company plans to increase dividends by 8%, and then the dividend growth rate should be 4%. It is necessary to estimate the value of the share, provided that the return on shares is estimated at 15%.

Calculate the amount of dividends that will be paid in the next three years

The amount of the dividend planned to be paid at the end of the fourth year should be:

Preferred shares are valued according to the formula

where. I - fixed dividend, gr ed;

d - the rate of return required by the investor, as a decimal fraction

Example 912

A $40 preferred share pays a $9 dividend. Determine the price of the share if the required rate of return for this type of share is 18% per annum

Applying formula (912), we obtain:

Share return

To analyze the effectiveness of an investor's investment in the purchase of shares, the following types of returns can be used: dividend rate, current share return for the investor, current market return, final and total return.

Dividend Rate (Gi):

where i) - the amount of annual dividends paid, gr ed;. LG is the nominal price of a share, gr from

The dividend rate is usually used when declaring annual dividends.

The current return for the investor (rendit) (sr) is calculated by the formula

where. P - share purchase price, g from. Current market return (si ^

where. P0 is the current market price of the share, gr from

Ending Yield (AIK) is calculated using the formula

where I) - the amount of dividends paid on average for the year (defined as the arithmetic mean) gr u;

n - the number of years during which the investor owned the share, years;

Ра — share price, gr from

A generalizing indicator of the effectiveness of an investor's investments in the purchase of shares is the total return (si ()

where 2) n is the amount of paid dividends, g from

The final and total returns can be calculated in the case when the investor has sold the share or intends to do so at a price known to him.

• Purpose of the article: displaying information about the enterprise's own shares redeemed from shareholders (shares of founders in LLC).
• Line in the balance sheet: 1320.
• Numbers of accounts included in the line: debit balance of account 81.

in detail

Line 1320 of the balance sheet of joint-stock companies reflects that part of their own securities that was purchased back from the current shareholders of the company for the purpose of their further sale or cancellation. Line 1320 may also be filled out in the accounting reports of limited liability companies or partnerships to display the redeemed shares of the founders.

According to the federal law regulating the activities of joint-stock companies, own shares of organizations can be repurchased in the following cases:

1. Making adjustments to the size of the authorized capital (for example, the general meeting approved a decision to reduce the size of the authorized capital by canceling the acquired securities in order to redistribute the role of shareholders in the company's activities).

   Note from the author! A joint-stock company has the right to buy back its own securities only within the limits of the minimum amount of the authorized capital of the joint-stock company: 100 thousand rubles for public companies, 10 thousand rubles for non-public organizations.

   Changes in the authorized capital are subject to mandatory state registration. Entering information into the accounting of the company is permissible only after changing the constituent documentation and making adjustments to the Unified State Register of Legal Entities.

2. For the purpose of redistributing the statutory fund without reducing it, for example, investing own securities in the statutory fund of third-party organizations, redistributing the number of shares among shareholders, etc.

   Note from the author! Repurchased treasury shares must be sold within a calendar year. If this does not happen, at the meeting of shareholders of the company a decision is made to cancel these securities and, accordingly, reduce the size of the authorized capital of the company.

Line 1320 of the balance sheet of financial statements refers to the section Capital and reserves of the balance sheet liability: here information is displayed on the debit of 81 accounts: the amount of the organization's actual costs incurred to buy back securities of shareholders or shares of the founders of the company and partnership as of December 31 of the current year, the previous and previous .

Note! The write-off of securities purchased from shareholders is displayed in Kt81.

Regulatory regulation

The use of the debit of account 81 to generate information on the costs incurred for the repurchase of own shares is carried out in accordance with the Chart of Accounts and other regulatory documents that determine the rules for adjusting the company's authorized capital (for example, Federal Law No. 208 dated 12/26/1995 for joint-stock companies).

Practical examples on transactions with own securities repurchased from shareholders

Example 1

Since no decisions were made on these shares at the end of the reporting year, the amount of 27.5 thousand rubles is recorded in line 1320 of the balance sheet.

Example 2

On December 14, 2017, Polis JSC bought back 25 of its own shares from shareholders at a selling price of 1,100 rubles per share. The nominal price of shares is 900 rubles. On December 20, 2017, the company sold 11 of its own shares at 1,300 rubles per unit.

Postings on business transactions carried out in the accounting of JSC

27.5 thousand rubles - acceptance of repurchased shares for accounting.

The procedure for calculating the book value of shares

rubles - reflected the sale of securities.

Dt 91.2 Kt81

12100 - the discount price of securities has been written off.

2200 (14.3 - 12.1) - financial result of the transaction.

In this example, when compiling the balance sheet, line 1320 should display 15,400 rubles.

Example 3

On December 14, 2017, Polis JSC bought back 25 of its own shares from shareholders at a selling price of 1,100 rubles per share. The nominal price of shares is 900 rubles.

Postings on business transactions carried out in the accounting of JSC

27.5 thousand rubles - acceptance of repurchased shares for accounting.

At the general meeting on December 20, 2017, it was decided to reduce the size of the company's authorized capital by canceling 10 securities purchased from shareholders.

After making adjustments to the constituent documentation, the following accounting entries were made:

9000 - procedure for reducing the authorized capital.

2000 - reflection of the difference between the cost of funds for the acquisition of own shares and their initial face value.

Common entries for transactions with own securities repurchased from shareholders

1. Operations for the redemption of the organization's own shares from shareholders (acquisition of shares of owners in a company or partnership)

   Dt81 Kt50,51,52,55 - in cash at the cash desk or by bank transfer.

   Dt81 Kt75 - for the acquisition of shares contributed by the owners when they decide to withdraw from the founders of the legal entity.

2. Reducing the size of the authorized capital of the organization by canceling some of its own securities purchased from shareholders
3. Fixing the difference between the money spent on the return of own securities to the property of the company and the face value of the security itself

   Dt91.02 Kt81 - if the costs exceeded the face value.

   Dt81 Kt91.01 - if the face value exceeded the costs.

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Related reference materials

Tasks for the course "Securities market"

The question of the valuation of shares is closely related to its life cycle, which covers: issue, initial placement and circulation.

The first valuation of a share occurs at the time of its issuance and is called the face value of the share.

Share face value- this is what is indicated on its front side, sometimes it is called the face value. The nominal value of all shares of a JSC must be the same and provide all shareholders of this JSC with an equal amount of rights. The authorized capital of a joint-stock company is equal to the sum of the face values ​​of the shares.

Then the valuation of the share takes place during its initial placement, when it is necessary to set the issue price of the share.

Issue price is the price at which a share is purchased by the first holders (shareholders) of the company. The issue price should be the same for all first buyers. According to the Law "On Joint Stock Companies", payment for the company's shares is carried out at market value, but not lower than their nominal value. Payment for the shares of the company upon its establishment is made by its founders at their nominal value. Shares of the first issue are placed only among the founders of the company. Therefore, we can conclude that only shares of the additional issue can be paid at market value. If the market value of a share exceeds the nominal value of this security, share premium is generated, which is added to the equity capital of the JSC.

Book value of shares

(Emission price - nominal value = share premium).

After the initial placement, the "working life" of the stock begins.

Market (exchange) price is the price at which shares are bought and sold on the secondary market. The market price is set on the exchange by the equilibrium ratio of supply and demand. The exchange rate as a result of the exchange quotation implies the presence of two prices:

The bid price is the bid price at which the buyer expresses a desire to purchase shares.

Offer - the offer price at which the owner or issuer of a share wishes to sell it.

Spread is the difference between the ask price and the offer price. The smaller the spread, the more liquid the market. The market price is the execution price of the transaction, it is between the bid and offer prices. The market price with a large demand can be equal to the offer price, and with an excess amount of securities - the demand price. Price change is one of the indicators of exchange activity.

The market value of a share is measured in monetary units - rubles.

Book value plays an important role in the valuation of a share. The book value is the ratio of the company's own assets to the number of issued shares. The book value is determined during audits in the event that the issuer intends to go through a listing to include its shares in the exchange list of securities admitted to exchange trading, as well as during the liquidation of the joint-stock company, in order to determine the share of ownership per share.

The market price of a share per 100 monetary units of par value is called the exchange rate.

.(6)

Liquidation value of the share is determined at the time of the closing of the company and is calculated based on the value of the property to be sold in actual prices and the number of shares issued by the company.

Actual share price is for the investor in future income, so the calculation of the actual value of the share takes into account the required level of profitability and the distribution of expected income in the future.

An indicator that reflects the average price of shares and other securities for a certain set of companies is called a stock index. The index allows investors who invest in securities to assess the state of both the stock market as a whole and the reliability of their own capital.

The Dow Jones index for industrial stocks is an indicator of changes in market prices. It is calculated by summing the share prices of the 30 largest stable industrial companies and dividing the resulting amount by a factor.

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What is price/book value ratio

Price/book value ratio is the ratio of the current market value of a share to its book value, according to the last quarterly report. Also, this market ratio determines the ratio of the company's market capitalization to equity capital minus the cost of preferred shares.
Calculation formula:
P/B = Stock price per share / Shareholder’s equity share
As a result, the following boundary values ​​are obtained:

• P / B > 2 - the company may be overvalued. At the same time, the market may rate a business high for an objective reason - because it is a profitable company with a high return on assets (ROA) . Therefore, the market value is much higher than the face value.
• P/B = 1-2 - the company is valued fairly. The book value is equal to the market value. The market is neutral about the company's assets, not wanting to pay a premium for owning a business.
• P/B< 1 - компания недооценена. Балансовая стоимость выше рыночной, рынок не уверен в способности компании порождать прибыль. С одной стороны, это свидетельствует о финансовых трудностях, неэффективном управлении, а значит, слишком высокая цена платится за то, что можно получить в случае внезапного банкротства. С другой стороны, такие компании предпочитают искать инвесторы в предположении, что восприятие рынка неверно – это дает возможность купить хороший бизнес дешевле, чем его оценивают.

Differences between book value and market value

book value- denotes the valuation of the business according to accounting documents, in particular, the balance sheet. In accounting terms, the value of a company is the difference between the book value of assets and total accounts payable. What will remain if the company sells all the property and pays off debts. It is desirable that the remainder be positive.
Market value is the valuation of a company by stock market participants. It is calculated by multiplying the current price of one share by the total number of securities in circulation. Usually, when people talk about the value of a business, they mean the market value.
The investor's goal is to compare how much the market price of a company's share differs from its book value in order to understand whether the company's shares are undervalued or overvalued? For a more accurate estimate, you should use P / B paired with the return on equity ratio - ROE (Return On Equity), in the calculation of which net assets are also used.
1) As ROE grows, so should P/B. Low ROE and high P/B indicate that stocks are overvalued.
2) High ROE and low P / B - that the market underestimates the potential of the company.

How to understand the value of the coefficient of market and book value of shares

Differences between the two kinds of value are commonplace. The book value is subject to accounting rules, which have their own internal logic, which does not necessarily coincide with economic realities. After all, profit can be generated on the basis of intangible assets. In addition, the property on the balance sheet of the company is subject to annual depreciation and depreciation, but at the same time it can create a good profit. Market valuation takes into account all such points.
Keep in mind that average P/B can vary across industries. At the same time, pay attention to the factors of financial stability, profitability and growth potential.
For example, manufacturing companies have a high book value of their fixed assets (structures, transport, machinery…). A PBR value of 2-3 may be normal. A value of 5-6 means that the shares of this company are overvalued. And there are companies where human resources, intellectual assets are the main capital, a PBR value of 7-10 and above can also be acceptable. Therefore, indicators below 1 are questionable - perhaps the company is going through hard times and should refrain from investing.

The shares acquired by the company are classified as securities and are included in the structure of financial investments. This category does not include the company's own shares purchased from shareholders for further sale or cancellation. In our publication, we will focus on financial investments, one of the components of which are the acquired shares of other enterprises. Let's look at the features of accounting for these assets.

Reflection of financial investments in accounting and reporting

Funds invested in shares of other enterprises are accepted for accounting at their original cost. The criteria for determining their initial and subsequent assessment, the nuances of depreciation, disposal, accounting for income and expenses on them are regulated in PBU 19/02 and Order of the Ministry of Finance of the Russian Federation No. 94n dated 10/31/2000.

The initial price is considered to be the share price, which includes the value of:

their acquisitions;

information/advisory services related to the purchase of shares;

remuneration to intermediaries through which shares were acquired;

other costs directly related to the purchase of shares, including VAT on such costs.

Before being formed in the balance sheet, the value of the acquired shares is accumulated on the account. 58 "Financial investments". Analytical accounting is also mandatory, in the registers of which information is recorded on the name and details of the security, the date of acquisition / disposal, quantity and place of storage.

The amount of investments is reflected in the balance sheet at the end of the reporting year in comparison with the data of the previous year, and is subdivided depending on the urgency:

long-term (operating more than a year) in the balance sheet line 1170,

short-term - in line 1240.

If the company did not make other investments except for the purchase of shares, then these lines will reflect their value, if there are other investments, the value of the shares will be one of the components of the total amount for the line.

Market value of shares on the balance sheet (line)

So, securities are accepted for accounting at the original price, but at the end of each reporting period, the value of traded shares should be reflected in the accounting at the current market value, revaluing their value relative to the last value on the previous reporting date according to the information contained in the quotation sheets. Therefore, at the end of the year, line 1170 of the balance sheet should reflect the current market price of shares, and the difference between it and the initial (or previously revalued) cost is fixed on the financial results of the company in the structure of other income or expenses (clause 20 PBU 19/02). Such adjustments to the value of the company are carried out monthly or quarterly (at least once a year), based on the provisions of the accounting policy.

Accounting entries for purchased shares

To account for shares, a separate subaccount is usually allocated, for example, 58/1. The main accounting entries for their accounting are as follows:

Operations
Shares purchased
Increase in market value (PC) of shares at the reporting date
Decrease in RS at the reporting date
Creation of a reserve for depreciation of shares for which the current RS is not determined
Write-off of the reserve or its part in case of an increase in the estimated value or sale of shares for which the current RS is not determined
Write-off of the book value of shares upon sale
Reflected income from the sale of shares

Here is an example of accounting and revaluation of investments in shares

On September 20, 2018, Investdom OJSC acquired 50 shares from Istok OJSC at a price of 10 thousand rubles / each. Investments were made with a perspective of 5 years (long-term investments). Shares were revalued at the end of the year. In accordance with the quotations, the cost of each amounted to 11 thousand rubles. The accounting entries will be as follows:

Suppose that the accounting of the company "OJSC" Investdom "is quarterly. Therefore, as of October 31, 2018, the balance sheet line No. 1170 will reflect the value of the shares in the amount of 500 thousand rubles. As of December 31, 2018, the market value of the shares in the balance sheet (line 1170) will be reflected, taking into account the revaluation, and will amount to 550 thousand rubles.

Thus, this financial ratio relates the company's share capital to the number of ordinary shares outstanding. Since preferred shares are not taken into account, the BVS is of interest primarily to ordinary shareholders.

Calculation of book value per share

The company's book value per share is calculated using the formula:

Book value per share = (Total share capital - Preferred capital) / Number of shares outstanding

This indicator is calculated using the average number of shares outstanding, as some short-term events, such as share repurchases, may change the number of shares at the end of the calculation period, which will affect the calculation result and reduce the reliability of the indicator.

Interpretation

According to this indicator, investors can evaluate the value of one ordinary share of the company. For example, if a stock's market value is below its book value, then the stock may be undervalued.

Book value and market value of equity are not the same thing. The book value is not directly related to the value of the company's business and is, in fact, only an accounting indicator that depends on the accounting rules adopted by the company.

The market value is determined by the current price of the company's shares in the market and shows how much potential buyers are willing to pay for an ordinary share.

Book value per share is calculated based on past costs, while market value is a forward-looking indicator that reflects a company's ability to generate profits in the future.

If the market value is much higher than the book value, the price of such a share is usually in a bullish trend. If these figures are approximately equal, the market may be bearish.

Tangible and intangible assets

Some companies hold a significant portion of their assets in the form of real estate or equipment, while others in the form of intangible assets such as copyrights or trademarks. Even qualified sales staff can be considered an asset because they are able to generate income. For two companies with the same book value per share but different types of assets, the market price of the shares can differ significantly depending on the value of their assets within a particular industry.

Conclusion

When looking at book value per share, there are two important things to keep in mind:

• Market value per share is a forward-looking measure that reflects the value of a company's business, while book value per share is only an accounting measure. They are not related in any way and are calculated based on different data.
• Some assets may be significantly undervalued because their value is difficult to express in monetary terms. These include the brand and reputation that have been built over the years, the results of our own research, patents and intellectual property rights. All these are factors that can lead to a discrepancy between the book value and the market value of shares.