Book value per share represents the equity a common stockholder has in the net assets of the corporation form owning one share of stock. The net assets of a corporation must be equal to total stockholders’ equity.
Therefore, the formula for computing book value per share when a company has only one class of stock outstanding is:
Total Stockholders’ Equity ÷ Number of Common Shares Outstanding = Book Value per Share
Book value generally is based on recorded case. Book value per share is useful in determining the trend of stockholder’s per share equity in a corporation. It is also significant in many contracts and in court cases where the rights of individual parties are based on cost information.