Book Value
IntermediateBook value is the value of a company's equity as shown on its balance sheet: total assets minus total liabilities. It is often expressed per share.
Book value tells you what shareholders' stake is worth according to the accounts. It is the same as shareholders' equity. Dividing it by the number of shares outstanding gives book value per share.
For example, a company with total assets of 500 million and total liabilities of 300 million has a book value of 200 million. With 50 million shares, its book value per share is 4.
Book value is widely used in investing. The price-to-book ratio compares a company's share price with its book value per share. A share trading at 6 with a book value of 4 has a price-to-book ratio of 1.5.
Book value has limitations. Because most assets are recorded at historical cost, book value may understate the real worth of companies with valuable property or long-held assets. It also leaves out many internally created intangible assets, such as brands and know-how, which can be worth a great deal. For this reason, book value is more meaningful for banks and asset-heavy businesses than for technology companies.
The term is sometimes also used loosely for the carrying amount of a single asset.
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