Can the value a company generates for its shareholders be measured?

A company’s book value is its value according to its balance sheet. A very basic and simplified way to explain it would be to say that the book value equates to the the company’s assets (factoring in any related depreciation or amortization of the assets as reflected in the balance sheet) minus the company's liabilities or debts.

We find both physical and intangible assets included within a company’s assets. Other assets include securities portfolios, and specifically in the case of financial institutions, their loan book. International Accounting Standard 38 (IAS 38) defines intangible assets as non-monetary assets that are identifiable and without physical substance. Patents, the company’s brand, software, and goodwill are examples of intangible assets.

If we exclude these intangible assets from a company's book value, we get the tangible book value. This tangible book value is considered to be a more accurate measure of the company’s most recent value for its shareholders. For example, the tangible book value is taken as the benchmark value in the event of a company’s hypothetical liquidation, when the intangible assets are deemed to lack value. The performance of this metric over time is a good indicator of the value generated by the company’s day-to-day business operations for its shareholders.

If we want to look at this value from a per share perspective, the metric to use would be the tangible book value per share. This value is obtained by simply dividing the tangible book value by the number of outstanding shares.

The share price performance is only one part of the return that a shareholder expects from  his or her investment; ultimately it represents the performance of a part of the assets. But the shareholder, through the dividend he or she receives, also has a stake in the company’s smooth operations and subsequent results. This is why when we talk about value generation, typically the dividend per share is added to the tangible book value per share.

Specifically in the case of BBVA, and using the data published in the most recent results presentation as reference, the tangible book value per share plus dividends paid in the first nine months of 2019 reached €6.51, which represents 14.2 percent growth compared to the same period the year before. In the current climate, this is an extraordinary display of shareholder value creation.