What does Book Value mean?

Book value is what a company would theoretically be worth if it sold all its assets and paid off all its debts — its assets minus its liabilities.

Book value = total assets − total liabilities, essentially a company's net worth on paper. Dividing by shares outstanding gives book value per share, which some investors compare to the stock price (price-to-book ratio) to gauge whether a stock is cheap relative to its hard assets.

Book Value example

A company with $10 billion in assets and $6 billion in debts has a book value of $4 billion. With 200 million shares, that's $20 of book value per share; at a $30 share price, the price-to-book ratio is 1.5.

Common beginner mistake

Using book value for every company. A software firm's real worth is its code and customers, which barely show up on the balance sheet.