What Is Book Value?
Book value is the accounting value of a company's net assets. It represents what would remain for the owners if every asset were recorded at its balance sheet amount and all debts were paid off. Book value generally matches shareholders' equity, the portion of a company's financing supplied by its owners rather than its lenders. Investors use it to get a sense of a company's net worth based on accounting records rather than current market prices.
How It Is Calculated
Book value is found by subtracting total liabilities from total assets:
Book Value = Total Assets − Total Liabilities
To find book value per share, divide that figure by the number of common shares outstanding. If a company has preferred stock, its value is usually subtracted first, since preferred holders have a claim ahead of common shareholders.
Book Value per Share = (Book Value − Preferred Stock) ÷ Common Shares Outstanding
As a hypothetical illustration, suppose a company reports $500 million in assets, $300 million in liabilities, and 50 million common shares outstanding with no preferred stock. Its book value is $200 million, or $4 per share.
Book Value and Market Price
A company's market price often differs from its book value. The ratio of share price to book value per share is known as the price-to-book ratio. A ratio above 1 means the market values the company above its recorded net assets, while a ratio below 1 means the market values it below. These gaps often reflect expectations about future profits, brand strength, and growth, which accounting records do not capture.
Limitations
Book value depends on accounting rules and historical cost, so it can be an imperfect measure of economic worth. Intangible assets such as patents or brand names may be recorded at little value, or not at all if they were developed internally. Depreciation gradually reduces the recorded value of physical assets even when they remain useful. Book value also does not show what assets would sell for in a forced sale, which is closer to liquidation value. For these reasons, book value is usually considered alongside other measures rather than on its own.
Updated October 15, 2026. For general education only; not financial, tax or legal advice.