Book value
Book value is a company’s total assets minus its total liabilities, the shareholders’ money as recorded in the balance sheet.
Book value per share = (Total assets − Total liabilities) ÷ Number of shares
What it is
The balance sheet lists what a company owns (assets) and what it owes (liabilities). What is left over belongs to the shareholders. That leftover is called book value, net worth or shareholders’ equity.
It is made up of the money shareholders originally put in plus all the profits the company has kept over the years instead of paying out. Divide it by the number of shares and you get book value per share.
How to read it
Book value grows when the company earns profit and keeps some of it. A steadily rising book value is a sign the business is building wealth for its owners.
It is most useful for businesses whose assets are mostly money, like banks and finance companies. For them, the loans on the books are the business, so the P/B ratio (price ÷ book value) is a common way to judge valuation.
Where it misleads
Book value records assets at their accounting value, not what they would actually sell for. Old land may be worth far more than its book value. Machinery in a dying industry may be worth far less.
Many good businesses, like software or consumer brands, earn their profit from people, brands and know-how that barely appear on the balance sheet. Their share price can sit far above book value for years, and that alone does not make them expensive.
Book value per share
A company has total assets of ₹2,500 crore and total liabilities of ₹1,500 crore. Book value = ₹1,000 crore. With 10 crore shares, book value per share is ₹100. If the share trades at ₹250, the P/B ratio is 2.5.
Common mistakes
- Thinking a share below book value is automatically a bargain. The assets may be worth less than recorded, or the business may be losing money.
- Using book value to judge asset-light companies, where most of the value is not on the balance sheet.
- Forgetting that large losses or write-offs can shrink book value quickly.
A company has assets of ₹800 crore, liabilities of ₹500 crore and 5 crore shares. What is book value per share?
- ₹60
- ₹160
- ₹100
Show the answer
₹60. Book value = ₹800 crore − ₹500 crore = ₹300 crore. Divided by 5 crore shares, that is ₹60 per share.
Common questions
What is the difference between book value and market value?
Book value is what the accounts say the shareholders own. Market value (market cap) is what the stock market is willing to pay for the company today.
Is it good to buy a stock below book value?
Not automatically. It can mean the market doubts the assets are worth what the books say, or expects losses ahead. You need to understand why.
Is book value the same as net worth?
Yes, in most Indian annual reports book value, net worth and shareholders’ equity mean the same thing.
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