Book Value Per Share

Question 1

What is the formula for Book Value Per Share

Answer 1

Common Shareholders Equity/Ending # common shares outstanding

OR OE - Preferred Rights / Ending # Common Shares outstanding

Question 2

What is a quasi-reorganization

Answer 2

US GAAP allows with negative retained earnings to “start fresh” and begin paying dividends. Usually happens when there is significant decrease in asset value.

Question 3

What are the three steps for a quasi-reorganization?

Answer 3

1) Adjust overstated asset value against retained earnings
2) contributed capital accounts to absorb all or part of the deficit in retained earnings
3) Reduce the common stock, and par value, if necessary

RESULT: An updated balance sheet with zero retained earnings, reduced assets, and contributed capital

If common stock is reduced, then you have to revalue the par value.