Book Value
QUICK ANSWER
Book value is the net value of a company's assets as recorded on its balance sheet, calculated by subtracting total liabilities from total assets. It represents what shareholders would theoretically receive if the company were liquidated and all its debts were paid off. It is also referred to as net asset value or shareholders' equity.
In depth
Book value can be assessed at both the company level and the per-share level. Book value per share is calculated by dividing total shareholders' equity by the number of outstanding shares, giving investors a baseline figure to compare against the market price. When a stock trades below its book value, it may signal that the market views the company's assets as overvalued on the books, or that the business faces significant challenges. When it trades above book value, the market is pricing in future earning potential beyond what the balance sheet shows.
It's important to note that book value has limitations, it reflects historical cost, not current market value. Assets like real estate or equipment may be worth significantly more (or less) than their recorded value after depreciation. For companies with large intangible assets like brand value, intellectual property, or customer relationships — none of which are fully captured on a balance sheet — book value can significantly understate true worth.