Value Per Share (VPS)

Value Per Share (VPS), sometimes also referred to as Book Value Per Share, is a simple yet powerful metric that gives you a company's net worth on a per-share basis. Imagine a company decided to close up shop today. It sells all of its assets—its factories, equipment, and cash—and uses that money to pay off all of its debts—its loans, bills, and other obligations. The money left over is the company's net worth, or Shareholders' Equity. The VPS is simply this leftover amount divided by the total number of Outstanding Shares. In essence, it tells you the theoretical dollar (or euro) value each shareholder would receive if the company were liquidated. For a value investor, this number is a fundamental starting point. It provides a tangible, conservative estimate of a share's underlying value, completely separate from its often-volatile price on the stock market.

Think of VPS as a company's price tag on the shelf, while the Share Price is what people are actually paying for it at the checkout counter. A Value Investing disciple, following in the footsteps of the great Benjamin Graham, looks for situations where the checkout price is lower than the price tag on the shelf.

The formula is refreshingly straightforward. You can find all the necessary numbers on a company's Balance Sheet.

• VPS = Shareholders' Equity / Total Number of Outstanding Shares

Where:

• Shareholders' Equity = Total Assets - Total Liabilities

Let’s take a simple example. Imagine “Bargain Hunter Inc.” has:

1. Total Assets: $50 million
2. Total Liabilities: $30 million
3. Shares Outstanding: 10 million

First, we find the Shareholders' Equity: $50 million - $30 million = $20 million. Next, we calculate the VPS: $20 million / 10 million shares = $2.00 per share. If Bargain Hunter Inc.'s stock is trading on the market for $1.50, a value investor's ears would perk up. The market is selling shares for less than their liquidation value, suggesting a potential Margin of Safety.

While VPS is incredibly useful, it's not a magic wand for finding winning stocks. It has important limitations that every investor must understand.

The value of assets on a company's books can be deceptive. A factory might be listed at its original purchase price from 30 years ago, minus depreciation, which could be far less than its actual real estate value today. Conversely, inventory might be valued at its cost but be impossible to sell for that amount. The “book” value isn't always the “real” value.

The biggest weakness of VPS is that it often ignores a company's most valuable Intangible Assets. A powerful brand like Coca-Cola's, a revolutionary patent, or a brilliant software code are immensely valuable but might be recorded on the balance sheet at a value of $1 or not at all. VPS is therefore much more effective for analyzing industrial companies, banks, or insurance firms—businesses with lots of tangible assets—than it is for tech or service companies whose value lies in their ideas and brands.

To get an even tougher, more skeptical valuation, many investors prefer to use Tangible Book Value Per Share (TBVPS). This calculation takes the extra step of subtracting all intangible assets, like Goodwill, from Shareholders' Equity before dividing by the number of shares. This gives you a “bare bones” liquidation value. If you can buy a stock for less than its TBVPS, you might have found a true bargain—what Warren Buffett once called a “cigar butt” investment: ugly, discarded, but with one good puff left in it for free. Ultimately, a low Share Price relative to VPS is a signal, not a conclusion. It’s a bright neon sign that says, “Dig deeper here!” It prompts you to ask the most important question: Why is it cheap? Is it a great company facing a temporary, solvable problem, or is it a failing business on its way to zero? VPS gets you in the door, but solid research is what closes the deal.