# Effect of a Share Repurchase on Book Value Per Share

Book value per share (BVPS) refers to a company’s total shareholders’ equity divided by the total number of outstanding shares.

A share repurchase can impact a company’s BVPS. It is important to note what the impact of  BVPS is given that it is used in the computation of the price to book value ratio, which is a popular metric used in equity valuation.

## How Share Repurchases Impact BVPS

A company’s book value per share will increase after a share repurchase only if the market price per share was lower than the book value per share prior to the repurchase.

Likewise, a company’s book value per share will decrease after a share repurchase if the market price per share was higher than the book value per share prior to the repurchase.

## Calculating the Effect of Share Repurchases on BVPS

An example will help explain this concept clearly.

Assume that the information in the table below is relevant to a company which is about to embark on a share repurchase:

 Market price per share: $10.00 No. of shares outstanding 1,000,000 Shareholders’ Equity$15,000,000.00 Book value per share $15.00 If the company buys back 100,000 shares at the market price, it will spend 100,000 x$10.00 = $1,000,000 on the share repurchase. After the share repurchase The company will then have 1,000,000 – 100,000 = 900,000 outstanding shares. Shareholders’ equity or book value will become$15,000,000 – $1,000,000 =$14,000,000.

And, book value per share, BVPS will = $14,000,000/900,000 =$15.56.

You can observe that since the market price per share < BVPS prior to the share repurchase; BVPS has increased from $10.00 to$15.56 after the repurchase.

## Question

You are given the information in the table below for a company which intends to repurchase 100,000 of its shares. What is its BVPS after the repurchase and does its value increase, decrease or remain unchanged?

 Market price per share: $8.00 No. of shares outstanding 1,000,000 Shareholders’ Equity$6,000,000.00 Book value per share $6.00 A. BVPS:$5.78; Change in BVPS: decrease

B. BVPS: $6.34; Change in BVPS: increase C. BVPS:$6.00; Change in BVPS: unchanged

Solution:

If the company buys back 100,000 shares at the market price, it will spend 100,000 x $8.00 =$800,000 on the share repurchase.

After the share repurchase

The company will have 1,000,000 – 100,000 = 900,000 outstanding shares.

Book value = $6,000,000 –$800,000 = $5,200,000. BVPS =$5,200,000/900,000 = $5.78. Since$5.78 < \$6.00, BVPS has decreased.

Calculate the effect of a share repurchase on book value per share

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