GLOSSARY
Book Value
Book value is the net asset value of a company as recorded on its balance sheet. It is calculated by subtracting total liabilities from total assets. Book value per share divides this figure by the number of shares outstanding.
Book value represents what shareholders would theoretically receive if the company liquidated all assets and paid off all debts. However, this is a simplified view since assets are recorded at historical cost, not current market value.
Book Value in Valuation
Book value is used in the Price-to-Book (P/B) ratio and the Graham Number formula. A stock trading below book value (P/B below 1.0) may indicate undervaluation, particularly for asset-heavy businesses like banks and manufacturers.
However, book value has significant limitations for modern businesses. Technology companies, service businesses, and brands derive most of their value from intangible assets like intellectual property, customer relationships, and brand equity. These assets are often not reflected on the balance sheet, making book value less relevant.
EXAMPLE
A company like Apple derives most of its value from brand, ecosystem, and intellectual property rather than physical assets. Its market cap far exceeds its book value because investors recognize these intangible advantages.
RELATED STOCKS
RELATED ARTICLES
The Graham Number: Benjamin Graham's Formula for Finding Undervalued Stocks
Learn the Graham Number formula, calculate it instantly with our free interactive calculator, see real stock examples with a comparison table, and understand when Benjamin Graham's classic valuation method works and when it does not.
How to Read a Balance Sheet: A Step-by-Step Guide
Learn to read a balance sheet step by step: assets, liabilities, equity, ratios like current ratio and debt-to-equity, and red flags — with a worked example.
RELATED TERMS
Graham Number
Benjamin Graham's formula combining P/E and P/B into a single valuation metric to identify undervalued stocks.
Price-to-Book Ratio (P/B)
Stock price divided by book value per share, comparing market valuation to net asset value on the balance sheet.
Intrinsic Value
The true underlying worth of a company based on fundamental analysis, independent of market sentiment.
Market Capitalization
The total market value of a company's outstanding shares, calculated as stock price times shares outstanding.
GET ALERTS
Track fair values for the top 10K stocks
Download Fair Price Index and receive push notifications when valuations shift for stocks you follow.
Free tier available · PRO $2.99/month
DISCLAIMER: This glossary is for educational purposes only and does not constitute financial advice. Fair value calculations are estimates based on models and assumptions. Always conduct your own research and consider consulting a financial advisor before making investment decisions.