Book value is the net asset value of a company, calculated by subtracting total liabilities from total assets as recorded on the balance sheet. It represents what shareholders would theoretically receive if the company were liquidated. Book value is a fundamental metric used in stock valuation, particularly in value investing. Comparing book value to a company’s market value helps assess whether a stock is under or overvalued. While useful, book value doesn’t always reflect intangible assets or future earnings potential, so it’s typically used alongside other financial indicators for a comprehensive investment analysis.
Example:
An analyst compares a company’s stock price to its book value per Share to assess whether it appears overvalued or undervalued.
