Book Value

Book Value is the accounting value of a company's net assets, calculated as total assets minus total liabilities. It represents shareholders' equity on the balance sheet and is what remains for shareholders if the company liquidated at balance sheet values.

Formula

Book Value = Total Assets - Total Liabilities

Book Value Per Share = Book Value ÷ Shares Outstanding

Example

JPMorgan Chase (JPM) has total assets of $3.7 trillion and total liabilities of $3.5 trillion. Book value = $200 billion. With 2.5 billion shares outstanding, book value per share is $80. JPM stock might trade at $180, for a P/B ratio of 2.25x.

How to Interpret It

• Book value vs. market value: Market cap (stock price × shares) is what investors think the company is worth today. Book value is historical accounting value, often lower.
• P/B > 1.0: The market values the company at a premium to its accounting net assets, reflecting expected future profits.
• P/B < 1.0: The stock trades at a discount to book value, possibly indicating undervaluation or market pessimism.
• Tangible book value: Excluding intangible assets (goodwill, patents), useful for comparing asset-heavy companies like banks.
• Book value per share: Used to calculate P/B ratio; growing book value per share signals value being created.

Limitations

• Book value is based on historical accounting, not current fair market value of assets. Real estate might be worth far more (or less) than its depreciated book value.
• Intangible assets (brand value, customer relationships, patents) aren't fully captured in book value but may be worth billions.
• Book value is useless for asset-light companies (software, internet) where most value is intangible.
• Goodwill (premium paid in acquisitions) inflates book value without a corresponding asset.
• Depreciation and accounting choices (FIFO vs. LIFO, useful life assumptions) distort book value.

Related Terms

• Price-to-Book Ratio — stock price divided by book value per share
• Balance Sheet — the financial statement showing assets, liabilities, and equity
• Shareholders' Equity — another name for book value
• Return on Equity — profit divided by book value, shows efficiency