Book value is what a company is worth on paper: everything it owns minus everything it owes, as recorded on the balance sheet. It is the accounting estimate of the equity that would remain for shareholders if the company sold its assets at their recorded values and paid off its liabilities.
Divided by the share count, it becomes book value per share, the anchor for the price-to-book (P/B) ratio — a classic yardstick for how much the market is paying relative to a company’s recorded net assets.
Per share: Book Value per Share = Book Value ÷ Shares Outstanding.
Suppose a company holds $50,000M in assets against $30,000M in liabilities. Its book value is $20,000M. Spread across 2,000M shares:
At a $150 share price, the price-to-book ratio is 15 — the market values the company at fifteen times its recorded net assets, a sign investors expect value far beyond what the balance sheet records.
Compare price to book for asset-heavy businesses — banks, insurers, industrials — where balance-sheet assets are close to economic reality. A P/B below 1 can flag deep value, where the market prices the company below its stated net worth.
Read it alongside return on equity: a high ROE justifies a higher P/B, because the company is compounding its book value faster.
Book value is most meaningful where reported assets are marked near their economic value — financial companies above all. For those, P/B is often a more reliable gauge than earnings-based multiples.
Historical-cost accounting understates intangibles — brands, software, intellectual property — so book value is nearly useless for asset-light businesses whose real worth is off the balance sheet. Goodwill from acquisitions can inflate it, which is why analysts often strip it out to get tangible book value.