What Is Book Value? Equity Per Share Explained
Book value is a company's net worth on paper: everything it owns minus everything it owes. Split across all its shares, it tells you the accounting value backing each single share — a figure investors compare against the market price to get a sense of what they're paying for.
Where book value comes from
Book value is really just another name for shareholders' equity, the bottom section of the balance sheet. Recall the accounting equation: assets = liabilities + equity. Rearrange it and equity — the owners' share — is simply assets minus liabilities. That's book value.
Book value per share
To make book value comparable to a share price, you divide it by the number of shares outstanding:
Example: $200,000,000 equity ÷ 50,000,000 shares = $4.00 per share
So each share is backed by $4 of net assets according to the company's books. This is the number that gets compared to the actual trading price.
Book value vs market value
Here's the crucial distinction. Book value is the accounting figure. Market value is what investors will actually pay — the share price, and across all shares, the company's market capitalisation. These two numbers are usually different, often very different.
| Book value | Market value | |
|---|---|---|
| What it is | Net assets on the books | What buyers will pay |
| Source | Balance sheet | Stock market price |
| Captures future growth? | No | Yes |
| Captures brand, ideas? | Mostly no | Yes |
Why the gap? Book value records the historical, accounting worth of physical things. Market value reflects investors' expectations of future profits and intangible strengths — a beloved brand, patents, a talented team — that rarely show up fully on the books. A software company with few physical assets can trade far above its book value, while a struggling manufacturer might trade below it.
How investors use it
The most common use is to compare price against book value directly, which produces the price-to-book (P/B) ratio — market value per share divided by book value per share. That ratio tells you how many dollars investors are paying for each dollar of net assets. On its own, book value is just a foundation; the comparison is where it becomes useful.
The bottom line
Book value is a company's net worth according to its own accounting — total assets minus total liabilities, or equivalently, shareholders' equity. Divided by shares outstanding, it gives book value per share, the accounting value behind each share. It's most useful when compared to the market price, but remember it captures the past and the physical, not the future and the intangible.
Frequently asked
What is book value in simple terms?
Book value is what a company would theoretically be worth if it sold all its assets and paid off all its debts — in other words, its shareholders' equity. Divided by the number of shares, it becomes book value per share. It's the company's net worth according to its own accounting records ('the books').
How is book value per share calculated?
Book value per share is total shareholders' equity divided by the number of shares outstanding. For example, $200 million of equity divided by 50 million shares equals $4 of book value per share. It represents the accounting net worth backing each share.
What's the difference between book value and market value?
Book value is the company's net worth on its accounting books (assets minus liabilities). Market value is what investors are actually willing to pay, reflected in the share price and market cap. Market value is usually higher because it prices in future growth and things the books don't capture, like brand strength.
Is a higher book value better?
Not necessarily — book value is just an accounting figure, not a score. A higher book value means more net assets on paper, but it says nothing about how well those assets generate profit. Two companies can have identical book values and completely different earning power, so it's only useful alongside other measures.
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