What Is Book Value?
Book value is what something is worth on the accounting books. For a whole company, book value equals total assets minus total liabilities, which is the same as shareholders' equity. For a single asset, it is the purchase cost less accumulated depreciation, amortization, or impairment.
Divided by shares outstanding, it becomes book value per share, a common per-share benchmark for comparing against the stock price.
Book Value vs. Market Value
Market value, or market capitalization, is what investors will pay for the company today, and it usually differs from book value, sometimes dramatically. The ratio between the two is the price-to-book (P/B) ratio, calculated as Market Price per Share / Book Value per Share.
The gap exists because accounting records assets at historical cost and largely ignores internally created intangibles like brands, technology, and talent. That is why asset-light software companies can trade at many times book value while banks and insurers, whose assets are mostly financial and marked closer to reality, trade near it.
Example
Suppose a company has $8 billion in assets, $5 billion in liabilities, and 300 million shares outstanding. Its book value is $3 billion, or $10 per share. If the stock trades at $25, the P/B ratio is 2.5x, meaning the market values the business at two and a half times its accounting net worth.
Why It Matters
Book value anchors classic value investing: buying below book was Benjamin Graham's original playbook, and P/B remains the primary valuation lens for banks, insurers, and other balance-sheet-driven businesses. A stock trading below book can signal either a bargain or a market judgment that the assets are overstated.
Analysts also track tangible book value, which strips out goodwill and intangibles, to get a harder-nosed measure of what equity holders would recover in a wind-down.
