Book Value and Earnings Per Share

Book Value per Share (BVPS)

• The portion of total shareholders' equity assigned to each outstanding share.
• Expected amount shareholders receive if assets are realized at book values.

Determination of BVPS

A. One Class of Share

• $Book Value per share = \frac{Total \space shareholders' \space equity \space excluding \space subscriptions \space receivable}{Number \space of \space shares \space outstanding}$
• Subscriptions receivable are not deducted because they must be paid during corporate liquidation.

B. More Than One Class of Share

• $BVPS \space of \space Preference \space Share = \frac{Preference \space shareholders' \space equity}{Number \space of \space preference \space shares \space outstanding}$
• $BVPS \space of \space Ordinary \space Share = \frac{Ordinary \space shareholders' \space equity}{Number \space of \space ordinary \space shares \space outstanding}$

Preference Share Preferences:

• Asset preference: Entitled to liquidating dividend value and dividends in arrears (considered a quasi-liability).
• Dividend preference: Right to receive dividends before ordinary shares.
  • If excess over par is negative, deficit is allocated pro-rata based on par or stated value.

Dividend Rights:

• Non-cumulative: Forfeits right to dividends if not declared in a given year (entitled only to current year dividends).
• Cumulative: Entitles holder to undeclared dividends which accumulate until paid.
• Non-participating: Entitled only to the fixed rate of dividends.
• Participating: Entitled to dividends beyond the basic rate.
  * Fully participating.
  * Participating only to a certain percentage.
  * Ordinary shares must receive a dividend equal to the preference share's basic rate multiplied by the total par or stated value of ordinary shares for one year before participation dividends are paid to preferred shareholders (or lowest rate of the preference shares).

Procedural Approach (Two or More Classes of Shares):

1. Compute outstanding shares and total par or stated value for each class.
2. Compute total shareholders' equity excluding subscriptions receivable.
3. Compute preference shareholders' equity:
   • Total par value of preference shares
   • Add: Preference dividends* (Fixed rate x total par value x years in arrears for cumulative, or x 1 year for non-cumulative, preference shares)
   • Liquidation premium [(Liquidation value - par value) x outstanding number of preference shares)]
   • Amount of participation (if any)
4. Compute ordinary shareholders' equity using the residual equity approach.
5. Compute book value per share for preference and ordinary shares.

Tabular Approach

• Step 1: Compute for the outstanding shares and total par value of the outstanding shares each class of share using this formula:

• Share capital issued

• Add: Subscribed share capital

• Total

• Less: Treasury shares

• Outstanding shares

• Step 2: Compute for the excess over par using this formula:

• Total shareholders' equity excluding subscriptions receivable

• Less: Total par value of the preference shares (outstanding shares x par value)

• Total par value of the ordinary shares (outstanding shares x par value)

• Excess over par

• Step 3: Use the following table in computing for the book value per share:

• NONPARTICIPATING

• Liquidation premium [(liquidation value par value) x outstanding preference shares]

• *Preference dividends

• Balance to ordinary shares

• Total shareholders' equity

• Divide by: Outstanding shares

• Book value per share

• PARTICIPATING

• Liquidation value [(liquidation value par value) x outstanding preference shares]

• Preference dividends

• Ordinary shares dividends

• Balance for participation