Book value represents the net worth of a company based on its balance sheet, calculated by subtracting total liabilities from total assets. It reflects what would theoretically remain for shareholders if a company liquidated all its assets and paid off all debts.
For investors, book value serves as a baseline for evaluating a company’s market value. When a stock trades below its book value per share, it might indicate the stock is undervalued, though this varies by industry and other factors. Companies in sectors with significant physical assets typically have book values that more closely reflect their true worth compared to service-based or technology companies.
Book value can also refer to the value of an asset as recorded on a company’s balance sheet, representing the original cost minus accumulated depreciation. This accounting measure helps track the declining value of assets over time and differs from market value, which reflects current market conditions and potential future earnings.
