Book value.
In plain English
Book value equals total assets minus total liabilities, the equity figure that accounting records produce from historical cost, depreciation, and retained earnings. It rarely matches market value, because assets sit at what was paid less depreciation rather than what they would fetch today, and because brands, patents developed in-house, and staff never appear on the balance sheet at all. Dividing book value by shares outstanding gives book value per share, the denominator in the price-to-book ratio. For asset-heavy businesses such as banks and industrials, book value is a meaningful anchor. For software and services companies it can be close to meaningless.
01Why it matters
When a stock trades far above or far below book value, the gap is telling you something about what the market thinks of assets the accountants either overstated or never recorded.
02The math, step by step
Say a company holds 8,000,000 dollars of assets and owes 5,000,000 dollars. Book value is 3,000,000 dollars. With 1,000,000 shares outstanding, book value per share is 3 dollars. If the stock trades at 12 dollars, the price-to-book ratio is 4.
Illustrative example. The amounts here are hypothetical, chosen to show how the math works, not real quoted rates or figures.
03What this is NOT
Book value is a bookkeeping result, not a price. A building bought decades ago sits at cost less depreciation, no matter what it would sell for. A brand built through years of advertising is worth a great deal and appears nowhere. Book value is a floor to think about, not an appraisal.
04Receipts
Every figure on this page is sourced to a primary document. Tap to open the original.
Plain-English answers from our glossary. Receipts included. Never advice.
Educational tool. Answers come only from ClearMoneySchool's published glossary and are not advice. Why we never give advice