Book Value = Total Assets − Total Liabilities Book Value per Share = Book Value ÷ Shares Outstanding
The Short Version
Book value is a company's net worth strictly according to its accounting records — total assets minus total liabilities, which is the same thing as shareholders' equity on the balance sheet. Book value per share divides that figure across every share outstanding, giving a rough per-share accounting 'floor' value, distinct from whatever price the market is actually willing to pay (covered via the P/B ratio in the Stock guide).
Explain It Like I'm 10
Imagine tallying up everything you personally own — your bike, your savings, your video game console — and then subtracting anything you owe, like money borrowed from a sibling. What's left over is your personal 'book value': a strict, honest accounting of your net worth based on what's actually on the books, not based on how much someone might pay you for the 'idea' of being you.
Step-by-Step Example
- 1 Total assets on the balance sheet: $500,000,000.
- 2 Total liabilities (everything owed): $300,000,000.
- 3 Subtract: Book Value = $500,000,000 − $300,000,000 = $200,000,000.
- 4 Shares outstanding: 20,000,000 → Book Value per Share = $200,000,000 ÷ 20,000,000 = $10.
- 5 If the stock trades at $8, it's trading below its book value; if it trades at $25, the market is paying well above the company's accounting net worth, likely because it values growth prospects or intangible strengths the balance sheet doesn't fully capture.
A company with $500 million in assets and $300 million in liabilities has a book value of $200 million; across 20 million shares, that's $10 book value per share.
Quick Recap
- ✓ Book value reflects historical accounting cost, which can differ significantly from what assets are actually worth today (e.g., older real estate carried at purchase price).
- ✓ It's most meaningful for asset-heavy businesses like banks and insurers, and less meaningful for asset-light businesses whose real value is in brand, people, or ideas.
- ✓ Book value rises when the company retains profit, and falls when it pays dividends larger than profit or takes a loss.
- ✓ Compare book value to market price via the P/B ratio, detailed in the Stock Market guide.