Definition
Book Value
Book value is a company's net worth on its balance sheet, total assets minus total liabilities, representing what shareholders own on paper.
Book value equals shareholders' equity (share capital plus reserves). Divided by the number of shares, it gives book value per share, the accounting value backing each share. It is the denominator in the P/B ratio.
Book value reflects historical accounting, not market reality, intangibles like brands and IP are often understated, while obsolete assets may be overstated. It is most meaningful for banks and asset-heavy firms, and a stock trading well below book value may be cheap, or in distress.
Related terms
- Face ValueFace value (par value) is the nominal value of a share as stated by the company, often ₹1, ₹2 or ₹10.
- Price-to-Book (P/B) RatioThe P/B ratio compares a company's market price to its book value (net assets) per share, showing how much investors pay for each rupee of net worth.
- Intrinsic ValueIntrinsic value is the estimated true worth of a business based on its fundamentals and future cash flows, independent of the current market price.
Plain-English explainer from The Dispatch Investors Encyclopedia. General information, not financial advice.