Could someone explain it to me? Also, how are those book values related to market value. Is the par value of preferred/common stock only determined at the time of issuance? If so, does the book value change only when there is an extra issuance? Thank you.
the book value is an amount that is arbitrarly set by the management. depending on the par value(book value) of common stock and the total subscribed capital the companyy issues a set nr of stocks(nr stocks *par value = subscribed capital), that is if the shares have a par value for preffered stock the book value is equal as well with the par value there is really no relationship between common stock par value and the market price since the price of a stock incorporates shareholders equity, which is more that subscribed capital plusthat the market price is made by market expectations regarding that stock if there is an extra issuance the per share book value does not change only the total book value of subscribed capital
Florinpop are you sure this is right? If I were to issue more of a stock that has a fixed book value . Wouldn’t there be an unbalanced increase. i.e. I decide to issue 10,000 more shares at a book value of 5 dollars, wouldn’t the stated common stock and common shareholders equity increase without a subsequent change in assets or liabilities ? So I guess with an increase in the amount of issued common stock what adjusts to account for this increase?
Oculis - Issue 10,000 shares with $5 book value would add $50,000 to your Common Stock account and $50,000 to Cash. If you issued those shares for $25 each (if that were market value) they still have a book value of $5. In this case however your Cash increases by $250,000, Common Stock by $50,000, and Additional Paid-in Capital by $200,000. So your A =L+E balances. …I think
oculissunt mkgref is definetly right contributed capital is a liability. issuing 10000 shares at 5$ would increase the liabilities with 50,000$ and you would have an increase in assets ( cash ) as well if the issuing price is different than the par value mkgref described the situation quite clearly
Guys - Check out the difference between ‘par value’ and ‘book value’ for common stock, say on Wiki. Book value is about accounting; par value is about, well nearly nothing anymore for common; and market value is what someone will pay for the stock. Anyway, “book value” and “par value” are quite different and are confused above.
Ok. Thanks for the replies. Then, when and how can a book value change? Or does a book value stay the same all the time even when you issue an andditional shares?
JoeyDVivre, How are “par value” and “book value” different? I am very confused too.
Ok Joey I will admit that there is a difference but for a share of common stock of par value of 10$ what would be its book value?
First, there just isn’t commonstock with par of $10 anymore in the US as far as I know. It’s all like $0.01. The book value is the shareholders equity/number of shares outstanding.
Bookvalue/share, beginning of year - Dividends + Sh issue Premium + Comprehensive EPS = Bookvalue/share, end of year Joey is right Thank you
If the book value is the shareholders equity/number of shares outstanding, (book value of preferred stock) * (number of preferred stock outstanding) = (book value of common stock) * (number of common stock outstanding) Is this true?
I don’t think it is I really don’t see the relationship there So book value would be equal to Net Asset Value/share?
yangrm Wrote: ------------------------------------------------------- > Could someone explain it to me? > > Also, how are those book values related to market > value. > Is the par value of preferred/common stock only > determined at the time of issuance? > If so, does the book value change only when there > is an extra issuance? > > > Thank you. ==================================== Ok…I might be completely off the tangent here…but, the Book Value of a stock as I see it is just the Book Value of the company’s equity divided by the WA # of shares outstanding. Book Value of Equity is the difference between the book Value of Assets and the Book Value of Liabilitiies. Book Value of Equity can change for a number of reasons, primary ones being 1) Increased Retained earnings…i.e, you can get more assets on your books without increasing your liabillities. 2) New issues of common stock, preffered stock etc: It does not matter whether the par value of stock is $1 or $10, if it issued on the open market for $100, the company will get $100 (assuming no transaction costs). With this money it can ramp up its assets, the book value of equity will increase by $100.
Now we’re talking… The book value of preferred is a little more nebulous. It might be as simple as the par value of the preferred, but often is not. a) If the preferred is cumulative, the book value needs to add dividends in arrears. b) If the preferred is callable above par, the book value starts at the call price not par. c) If it’s convertible, the book value is its conversion value if that is higher than a) or b) (I think, but I would check with an expert on that).