Book Value: Definition, Meaning, Formula, and Examples
By ADAM HAYES:max_bytes(150000):strip_icc():format(webp)/adam_hayes-5bfc262a46e0fb005118b414.jpg)
Full Bio
Adam Hayes, Ph.D., CFA, is a financial writer with 15+ years Wall Street experience as a derivatives trader. Besides his extensive derivative trading expertise, Adam is an expert in economics and behavioral finance. Adam received his master's in economics from The New School for Social Research and his Ph.D. from the University of Wisconsin-Madison in sociology. He is a CFA charterholder as well as holding FINRA Series 7, 55 & 63 licenses. He currently researches and teaches economic sociology and the social studies of finance at the University of Lucerne in Switzerland.Adam's new book, "Irrational Together: The Social Forces That Invisibly Shape Our Economic Behavior" (University of Chicago Press) is a must-read at the intersection of behavioral economics and sociology that reshapes how we think about the social underpinnings of our financial choices.
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Updated May 10, 2025
Reviewed by GORDON SCOTT
Fact checked by RYAN EICHLER
Book Value
DEFINITION
A company’s book value equals the value of its assets remaining after accounting for its outstanding debts and other obligations.
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What Is Book Value?[color=rgba(0, 0, 0, 0.95)]
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[color=rgba(0, 0, 0, 0.95)]Book value is the value of a company's assets after deducting its liabilities. It approximates the total value shareholders would receive if the company were liquidated. Investors can use this metric to help determine whether a company is under or overvalued.
[color=rgba(0, 0, 0, 0.95)]KEY TAKEAWAYS- Book value is often different from a company's market value.
- Book value per share and the price-to-book ratio are utilized in fundamental analysis.
- A book value per share that's lower than the market price for the share may indicate that a stock is overvalued.
- A company's market value will usually be greater than its book value because the market price incorporates investor's thoughts and calculations about intangible assets,
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How Book Value Works
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[color=rgba(0, 0, 0, 0.95)]The term book value refers to a company's shareholders' equity. This is the value of all of the company's assets after its liabilities are deducted. As such, it represents the net worth of a company or how much it would be worth to shareholders if the company was liquidated.
[color=rgba(0, 0, 0, 0.95)]While it may provide the basic framework of a company's net worth, the book value isn't necessarily accurate. That's because it relies on historical information and doesn't highlight the (true) value of any intangible assets like patents and trademarks. It's also different from a company's market value, which is the current value of the company. Market value is generally determined by investor sentiment and forward expectations.
[color=rgba(0, 0, 0, 0.95)]Investors can find a company's shareholders' equity (along with the value of its assets and liabilities) on its balance sheet. The book value can help investors in two ways:
- It is used in and with other financial ratios to help investors value a company.
- When compared to the company's market value, book value can indicate whether a stock is underpriced or overpriced.
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[color=rgba(0, 0, 0, 0.95)]Book value is also included in some financial ratios that can help investors size up a company's financial health.
IMPORTANT
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[color=rgba(0, 0, 0, 0.95)]There is also a book value used by accountants to value the assets owned by a company. This differs from the book value for investors because it is only used internally for managerial accounting purposes.
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Book Value Per Share (BVPS)
[color=rgba(0, 0, 0, 0.95)]Book value per share (BVPS) is the per-share book value. Investors can calculate it easily if they have the balance sheet of a company of interest. Investors can compare BVPS to a stock's market price to get an idea of whether that stock is overvalued or undervalued.
[color=rgba(0, 0, 0, 0.95)]To get BVPS, divide the figure for total common shareholders' equity by the total number of outstanding common shares.
[color=rgba(0, 0, 0, 0.95)]To obtain the figure for total common shareholders' equity, take the figure for total shareholders' equity and subtract any preferred stock value. If there is no preferred stock, then simply use the figure for total shareholder equity.
BVPS = Total Shareholder Equity - Preferred Stock ÷ Total Common Shares Outstanding
[color=rgba(0, 0, 0, 0.95)]So, if a company had $21 million in shareholders' equity (and no preferred stock) and two million outstanding common shares, its book value per share would be $10.50:
- BVPS = $21 million ÷ 2 million
- BVPS = $10.50
[color=rgba(0, 0, 0, 0.95)]If the market price for a share is higher than the BVPS, then the stock may be seen as overvalued.
[color=rgba(0, 0, 0, 0.95)]FAST FACTThere is a difference between outstanding and issued shares, but some companies might refer to outstanding common shares as issued shares in their reports.
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Price-to-Book (P/B) Ratio
[color=rgba(0, 0, 0, 0.95)]Price-to-book (P/B) ratio as a valuation multiple is useful when comparing similar companies within the same industry that follow a uniform accounting method for asset valuation. It can offer a view of how the market values a particular company's stock and whether that value is comparable to the BVPS.
[color=rgba(0, 0, 0, 0.95)]The ratio may not serve as a valid valuation basis when comparing companies from different sectors and industries because companies in other industries may record their assets differently. As a result, a high P/B ratio would not necessarily be a premium valuation, and conversely, a low P/B ratio would not automatically be a discount valuation when comparing companies in different industries.
[color=rgba(0, 0, 0, 0.95)]The P/B ratio is simple to calculate. Just divide the market price per share by the book value per share.
P/B Ratio = Market Share Price ÷ Book Value Per Share
[color=rgba(0, 0, 0, 0.95)]In the previous example, the BVPS was $10.50. So, if the company's shares had a current market value of $13.17, its price-to-book ratio would be 1.25:
- P/B Ratio = $13.17 ÷ $10.50
- P/B Ratio = 1.25
[color=rgba(0, 0, 0, 0.95)]The figure of 1.25 indicates that the market has priced shares at a premium to the book value of a share. Some may consider this to mean a stock is overvalued.
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Examples of Book Value
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[color=rgba(0, 0, 0, 0.95)]Shareholders' equity is a section on a company's balance sheet that displays the shareholders' claim on assets after liabilities have been accounted for. The image below is Amazon's (AMZN) consolidated balance sheet for its 2024 fiscal year. Note the Liabilities and Stockholders' Equity section, and in particular the stockholders' equity details within the red outline.1
Notice the section marked Total Stockholders' Equity with a value of $285.97 billion. That is Amazon's book value. This figure is calculated by adding the values of
preferred stock, common stock, Treasuries, additional paid-in capital, accumulated other comprehensive income (or loss), and retained earnings.
[color=rgba(0, 0, 0, 0.95)]Some companies include in this section unrealized gains or losses, capital surplus or cumulative adjustments, and many other line items, depending on the industry a company operates in and its internal accounting procedures.
[color=rgba(0, 0, 0, 0.95)]The following image shows Coca-Cola's (KO) Equity Attributable to Shareowners line at the bottom of its Shareowners' Equity section. In this case, that total of $24.86 billion would be the company's book value. It's one metric that an investor may look for if they're interested in valuating Coca-Cola as a potential investment.2
Since a company’s book value represents net worth, comparing book value to the market value of the shares can serve as an effective
valuation
technique when trying to decide whether shares are fairly priced.
Why Is It Called "Book Value"?
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[color=rgba(0, 0, 0, 0.95)]The term book value is derived from accounting lingo, where the accounting journal and ledger are known as a company’s books. Another name for accounting is bookkeeping.
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What Does a Price-to-Book Ratio of 1.0 Mean?
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[color=rgba(0, 0, 0, 0.95)]A P/B ratio of 1.0 indicates that the market price of a share of stock is exactly equal to its book value. For value investors, this may signal a good buy since the market price generally carries some premium over book value.
Why Is Market Value Often Higher Than Book Value?
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Book value only uses a company's total shareholder equity. It may not include intangible assets such as patents, intellectual property, brand value, and goodwill. It also may not fully account for workers' skills, human capital, and future profits and growth. Therefore, the market value, which is determined by the market (sellers and buyers) and represents how much investors are willing to pay after accounting for all of these factors, will generally be higher.
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The Bottom Line
[color=rgba(0, 0, 0, 0.95)]Book value is the value of a company's total assets minus its total liabilities. It is equal to total shareholders' equity. A company's market value will usually be greater than its book value because the market price incorporates investor's thoughts and calculations about intangible assets, such as intellectual property, human capital, and future growth prospects.
[color=rgba(0, 0, 0, 0.95)]Value investors look for relatively low book values (using metrics like P/B ratio or BVPS) but otherwise strong fundamentals in their quest to find undervalued companies.
[color=rgba(0, 0, 0, 0.95)]Correction—Aug. 24, 2023:
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[color=rgba(0, 0, 0, 0.95)]This article was corrected from a previous version that combined managerial accounting book value with value investing book value, which are two different concepts. As the article now states correctly, investing book value is the line item "Total Shareholders' Equity" or an equivalent entry from a company's balance sheet.
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