Short answer: Book value is a company’s net worth: its total assets minus its total liabilities. It is the amount shareholders would be left with if the company were liquidated, meaning its assets were sold and its debts and other obligations paid off. Dividing this figure by the number of outstanding shares gives book value per share, which investors often compare with the share price.
Last reviewed: 3 November 2026
At a glance
| Concept | How it is calculated | What it tells you |
|---|---|---|
| Book value | Total assets minus total liabilities | The company’s net worth |
| Book value per share | Total book value divided by outstanding shares | Book value attributable to each share |
| Conservative book value | Book value minus intangible assets such as goodwill | A stricter figure than assets minus liabilities alone |
| Share price below book value per share | Compare the market price with book value per share | A possible bargain, though inflated asset values should be checked |
| Share price well above book value per share | Compare the market price with book value per share | Investor optimism about future earnings, or overvaluation in some readings |
| Asset valuation basis | Historical cost less accumulated depreciation | May not match current market value |
How is book value calculated?
Start with the balance sheet, the statement that lists what a company owns and what it owes on a given date. Subtract liabilities (money owed to banks, suppliers and others) from assets (things the company owns, such as factories, land, cash and receivables). The result is book value.
Consider this hypothetical example, with figures invented purely for illustration. Company A has assets of Rs 500 crore, liabilities of Rs 200 crore and 3 crore outstanding shares. Its book value is Rs 300 crore, and its book value per share is Rs 300 crore divided by 3 crore shares, or Rs 100.
Some analysts go a step further and deduct intangible assets such as goodwill, the premium a company paid when it bought another business above the value of that business’s identifiable assets. Suppose Company A has Rs 40 crore of goodwill. Its conservative book value becomes Rs 260 crore, or about Rs 86.67 per share. This stricter figure is lower because it removes assets that are hard to sell separately.
What does it mean when a stock trades below book value?
When the share price is lower than book value per share, the market is valuing the company at less than its net worth on paper. Value investors, who look for shares priced below what they consider their worth, often treat this as a possible bargain or undervalued opportunity.
In the hypothetical example, if Company A’s shares trade at Rs 80, they sit 20% below the book value per share of Rs 100. That gap is not proof of a bargain. Asset values on the balance sheet may be inflated, the business may be losing money, or the market may expect the assets to be worth less than their recorded figures. Checking whether the assets are realistic is an essential step.
What does it mean when a stock trades well above book value?
When the share price is well above book value per share, the market is paying much more than the net worth recorded on the balance sheet. This can signal that investors are optimistic about the company’s future earnings, since they expect profits to grow well beyond what the existing assets currently produce.
Some readings treat the same gap as a warning that the stock is overvalued. If Company A’s shares traded at Rs 400, they would be four times book value per share. Whether that premium is justified depends on expectations that the balance sheet alone cannot show.
Where does book value fall short?
Book value has three main limitations, and each can make the figure misleading for certain companies.
First, it excludes intangible assets. Companies whose main assets are intangible, such as IT, technology and pharmaceutical firms, can have a book value that understates their true worth. Their value often lies in software, patents, brands and skilled teams, which may not appear fully on the balance sheet.
Second, it is only as current as the latest report. Companies usually report balance sheet figures quarterly or annually, so book value can be outdated compared with current market conditions.
Third, it uses historical cost. Assets are recorded at their original purchase price less accumulated depreciation, which is the cumulative reduction in value recorded over time. A piece of land bought decades ago may be worth far more today, and a machine may be worth far less than its recorded figure. Book value may therefore not reflect what those assets could fetch now.
Frequently asked questions
Is book value the same as market value?
No. Book value comes from balance sheet figures, usually recorded at historical cost less depreciation, while the share price reflects what buyers are currently willing to pay. The two can differ widely.
Does a stock trading below book value mean it is a bargain?
Value investors often treat it as a possible bargain or undervalued opportunity. However, inflated asset values should be checked before drawing that conclusion.
Why can book value understate IT and pharmaceutical companies?
Book value excludes intangible assets, and these companies often hold most of their worth in intangibles such as technology, know-how and intellectual property. Those assets may not be fully reflected in the balance sheet.
How current is book value?
It is based on balance sheet figures that companies usually report quarterly or annually. As a result, it can be outdated compared with current market conditions.
Sources and last check
Facts in this article were checked against the sources below on 3 November 2026. Rules and figures can change; check the primary source before acting.
- icicidirect.com (broker education)
- groww.in (broker education)
- kotakneo.com (broker education)
- upstox.com (broker education)
- dhan.co (broker education)
This article is general information, not investment advice. MyFinanceBandhu is not a SEBI-registered investment adviser.
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