What is book value
Book value is what a company's balance sheet says belongs to its owners: total assets minus total liabilities.
In reports it usually appears as shareholders' equity or total equity. It is an accounting figure based on the company's own records. It is not the price the market pays for the company.
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Worked example (hypothetical)
Take a made-up company, Company X. Its latest balance sheet shows:
| Item | Symbol |
|---|---|
| Total assets | A |
| Total liabilities | L |
| Ordinary shares outstanding | N |
| Market price per share | P |
The calculations work like this:
- Book value = A − L
- Book value per share (BVPS) = (A − L) ÷ N
- Price to book value (P/B) = P ÷ BVPS
The ratio compares two things:
- If P is above BVPS, buyers are paying more than the accounting net worth per share. This often happens when a company has brands, software or growth that the balance sheet does not fully capture.
- If P is below BVPS, the market values the company at less than its stated equity. This can mean the market doubts the asset values, expects losses, or sees other problems.
Neither case tells you on its own whether a share is cheap or expensive.
Where the term appears
- Company reports. Annual and quarterly reports show it in the statement of financial position (balance sheet), as total equity.
- Stock screeners and research notes. These list BVPS and P/B next to earnings ratios. Analysts use them in fundamental analysis.
- News. Stories about bank and insurance shares often quote P/B, because these companies mostly hold financial assets that are recorded at values close to market.
- Trading platforms. Platforms built for forex and CFDs usually show price data only. For book value, look in the company's filings.
Trading share or index CFDs with leverage can lose money fast. A low or high P/B does not change that risk.
Formal definition and edge cases
- Preferred equity. For common shareholders, subtract preferred equity before dividing by the number of ordinary shares.
- Tangible book value. This removes goodwill and other intangible assets. It is a stricter measure for companies that grew through acquisitions.
- Historical cost. Many assets are recorded at cost minus accumulated depreciation or amortization, not at current market value. Land bought long ago can be understated, and obsolete stock can be overstated.
- Negative book value. Liabilities can exceed assets after heavy losses or large share buybacks. When that happens, P/B has no useful meaning.
- Minority interest. Consolidated equity may include stakes held by outside shareholders in subsidiaries. These should be excluded for the parent company's BVPS.
- Book value of a single asset. In accounting, this means cost minus accumulated depreciation, which is a different use of the same term.
- Not face value. Face value (par value) is the nominal amount printed on a share or bond. It is unrelated to book value.
Related terms
- Face value (par value)
- Capital gain and loss
- Blue chip
- Free float
- Beta
- Stock indices
- Trading glossary
Frequent questions
What is book value in simple words?
It is the company's assets minus its liabilities, as shown on its balance sheet.
How do I calculate book value per share?
Take total equity, subtract any preferred equity, then divide by the number of ordinary shares outstanding.
What does price to book value show?
It shows how the market price per share compares with the book value per share. It is a comparison, not a buy or sell signal.
Is book value the same as market value?
No. Book value comes from accounting records. Market value is what buyers pay on the exchange.
Why is book value used more for banks?
Most of a bank's assets are loans and securities recorded near current value, so book value tells you more about a bank than about a company that relies on brands or patents.