Book Value
Book value is a company's total assets minus its total liabilities, as recorded on the balance sheet; it equals shareholders' equity.
Book value is what would theoretically be left for shareholders if a company sold all its assets at their balance sheet values and paid off all its debts. It is the same as shareholders' equity on the balance sheet. Book value per share divides this figure by the number of shares outstanding.
Example: a company has $5 billion in assets and $3 billion in liabilities. Its book value is $2 billion. With 100 million shares, book value per share is $20.
Book value is based on accounting records, not on market prices. Assets are often recorded at historical cost minus depreciation, so book value can differ greatly from what the assets are really worth. Some analysts use tangible book value, which excludes goodwill and other intangible assets.
Book value is most useful for asset-heavy businesses such as banks, insurers and industrial companies. It is less meaningful for software or brand-driven companies whose most valuable assets, such as know-how and reputation, barely appear on the balance sheet.
Comparing the share price with book value per share gives the price-to-book ratio.