8.10 Application IBM  Step 1:  Estimating Book Value



From the Income Statement the average number of shares outstanding respectively for:  2009, 2008 and 2007

Note to the above 10-K:  Following FASB Statement 160 (ASC 810-10) the FASB has recently (beginning on or after December 15, 2008) required that “noncontrolling interests” are part of equity in a consolidated reporting entity.  This is a departure from the previous practice of treating minority interests as a mezzanine item between liabilities and equity.   This has resulted from the convergence process between US GAAP and IFRS and in particular aligns reporting of noncontrolling interests with the requirements in IAS27.

As a result, by working with IBM’s Balance Sheet from their 10-K we subtract out Noncontrolling interests to compute the Book Value per Share:

Book Value per Share = Total Shareholders’ Equity/(Weighted-average number of shares outstanding) = 22.637/1.341 = $16.881 equals the book value per share.

The accounting concept of “Comprehensive Income” measures the change in Shareholders’ Equity not involving the shareholders.  It is different from traditional accounting income because in practice not all items pass through the accounting income statement.   For example, foreign currency translation adjustments, derivative accounting and certain pension liability adjustments.  Dividends, Treasury stock acquisitions and any new stock issues are not included because these involve the shareholders.  Comprehensive income is reported in the Consolidated Statement of Stockholders’ Equity in a standard 10-K form.  The book value per share (BV) is the Shareholders’ Equity divided by shares outstanding.   This can change for several reasons, including the payment of dividends, issuance of new shares.