Quick answer
Book value is the accounting value of a company: total assets minus total liabilities [1]. It equals shareholders' equity, the amount that would be left for owners if the company sold its assets and paid its debts [2].
#How is book value calculated?
It comes from the balance sheet. The SEC's beginner guide sets out the basic equation: assets equal liabilities plus shareholders' equity [2]. Rearranged, shareholders' equity, or book value, is assets minus liabilities. The SEC notes that shareholders' equity is sometimes called capital or net worth [2].
Worked example
From the balance sheet to price-to-book
A company reports total assets of $1.2 billion and total liabilities of $700 million. It has 25 million shares outstanding, trading at $30.
- Book value ($1,200,000,000 − $700,000,000)
- $500 million
- Book value per share ($500,000,000 ÷ 25,000,000)
- $20.00
- Price-to-book at $30 ($30 ÷ $20)
- 1.5
- Price-to-book if the price fell to $15
- 0.75
At $30, investors are paying 1.5 times the accounting value of each share. Below 1, the market values the company at less than its books.
Hypothetical company for illustration.
#What is the price-to-book (P/B) ratio?
FINRA describes the P/B ratio as the company's current stock price per share divided by its book value per share [1]. It is one way investors compare market value with accounting value. The growth vs value stocks guide shows how ratios like this are used to sort companies.
| Book value | Market value (market cap) | |
|---|---|---|
| Source | The company's balance sheet | The share price in the market |
| Formula | Total assets − total liabilities | Share price × shares outstanding |
| Changes | When new financial statements come out | Every trading day |
#Why can book value be misleading?
- Assets are often recorded at historical cost. A building bought decades ago may sit on the books far below what it would sell for.
- Some valuable things barely show up. Brands, know-how and software built in-house may count for little on the balance sheet.
- It is a snapshot. Book value reflects the date of the last report. Learn where to find it in how to read financial statements.
Related terms
Frequently asked questions
Is a stock with a P/B below 1 a bargain?
Not necessarily. A low P/B can reflect real problems, such as assets the market thinks are worth less than their book value. It is a starting point for questions, not an answer.
Can book value be negative?
Yes. If total liabilities exceed total assets, shareholders' equity is negative, and so is book value.
Sources
Grade A = primary source (regulator, government agency, official rulebook or the index provider's own documents). Numbers in brackets in the text point here.
- FINRA. Defining the Value of an Investment (2025). Accessed 2026-10-03.A
- U.S. Securities and Exchange Commission. Beginners' Guide to Financial Statements (2026). Accessed 2026-10-03.A
This page is general education, not personal financial, tax or legal advice. Figures in worked examples are hypothetical and calculated before taxes and fees unless stated. Rules and limits change; check the linked primary sources for the current version. How we check every page.
