Book value is a company’s net worth on its own accounting books: everything it owns (assets) minus everything it owes (liabilities). Per share, it is that total divided by shares outstanding — the denominator of the price-to-book ratio.
Book value = total assets − total liabilities. Book value per share = book value ÷ shares outstanding. Example (illustrative): a company reports $500 million in total assets and $300 million in total liabilities, so its book value (shareholders’ equity) is 500 − 300 = $200 million. With 50 million shares outstanding, book value per share is 200 ÷ 50 = $4.00. If the stock trades at $12, the market is paying three times book value (a price-to-book of 3). The figures are illustrative inputs, not a reading for any real stock.
Book value looks backward at what was paid for assets and written down over time; market value (share price × shares) looks forward at what investors think the business will earn. For a bank or insurer — whose assets are mostly cash, loans and securities carried near their real worth — book value is a meaningful floor. For an asset-light software or brand-driven company, its most valuable assets (code, patents, a brand, a customer base) barely appear on the balance sheet, so book value can be a tiny fraction of market value. That is the biggest reason a low price-to-book is not automatically “cheap.”
Because accounting records assets at cost (less depreciation), book value can understate the worth of things bought long ago — land, say — and it excludes internally-built intangibles entirely. Share buybacks reduce book value even when they create value, and heavy writedowns can slash it overnight. A company can even have negative book value and still be a going concern, especially after years of debt-funded buybacks. Read book value as an accounting starting point, not a market price.
Book value = total assets − total liabilities, which equals shareholders’ equity on the balance sheet. Book value per share divides that total by the number of shares outstanding.
Because book value looks backward at recorded asset cost while the share price looks forward at expected earnings. Asset-light firms (software, brands) hold most of their value in intangibles that barely appear on the balance sheet, so their book value can be a small fraction of market value.
Not automatically. It can be genuinely cheap, or the market may be signalling that the recorded assets are worth less than stated or that the business is shrinking. Book value is an accounting starting point, not a standalone buy signal.
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Educational research only — not investment advice.