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Book Value

Investment

Book Value per Share

The net asset value of a company per share, calculated as total assets minus total liabilities, divided by total shares outstanding. It represents what shareholders would receive if the company were liquidated at accounting values.

Definition

Book value (or Book Value per Share, BVPS) is the net asset value of a company on a per-share basis, calculated from the balance sheet. It represents what shareholders would theoretically receive per share if the company's assets were sold at their stated accounting values and all liabilities were paid off.

Book Value per Share = (Total Assets − Total Liabilities) / Total Shares Outstanding

Book value is most meaningful for capital-intensive businesses — banks, NBFCs, manufacturing companies, and infrastructure firms — where the balance sheet closely reflects the true value of the business. For asset-light or intellectual-property-driven businesses, book value understates actual worth.

Formula

Book Value per Share = Shareholders' Equity / Total Shares Outstanding

Shareholders' Equity = Total Assets − Total Liabilities

P/B Ratio = Market Price per Share / Book Value per Share

Worked Example

HDFC Bank (hypothetical data):

  • Total assets: ₹25,00,000 crore
  • Total liabilities (deposits, borrowings): ₹23,00,000 crore
  • Shareholders' equity: ₹2,00,000 crore
  • Shares outstanding: 750 crore

Book Value per Share = ₹2,00,000 crore / 750 crore = ₹266 per share

Market price: ₹1,650 per share

P/B Ratio = ₹1,650 / ₹266 = 6.2×

Investors are paying 6.2× the accounting net worth, justified by HDFC Bank's strong return on equity, brand, and future earnings potential.

Key Things to Know

  • Banks and NBFCs: Book value is the primary valuation metric for financial sector companies because their assets (loans, investments) are relatively liquid and marked to market. A bank trading at P/B of 1× is priced at the cost to recreate it; at 3× means investors expect strong long-term returns on equity.
  • Goodwill inflation: When a company acquires another at a premium, goodwill (the excess paid over book value) is added to the acquirer's balance sheet as an asset. This inflates book value artificially. Companies with large goodwill balances have "tangible book value" (book value minus intangibles/goodwill) which is more conservative.
  • Return on Equity (ROE): A company worth paying high P/B for is one with consistently high ROE — Return on Equity = Net Profit / Shareholders' Equity. If a company earns 20% ROE, it compounds book value at 20% per year (assuming earnings are retained). High ROE justifies a premium P/B.
  • Rights issue dilution: A rights issue at below book value dilutes existing shareholders' book value per share. A bonus issue doesn't change total book value but reduces book value per share (more shares, same total equity).
  • Tangible vs stated book value: For manufacturing companies with heavy capex, stated book value includes plant and machinery at depreciated cost — which may differ significantly from replacement cost or liquidation value. This is why stated book value may not perfectly represent what shareholders would actually receive in a wind-down.

Related Calculators

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Related Terms

P/E RatioPrice-to-Earnings RatioEBITDAEarnings Before Interest, Taxes, Depreciation and AmortisationROIReturn on InvestmentNet WorthPersonal Net Worth
Frequently Asked Questions
What is the Price-to-Book (P/B) ratio?
The Price-to-Book ratio = Market Price per Share / Book Value per Share. It compares a company's market valuation to its accounting net worth. P/B below 1 means the stock is trading below book value (potentially undervalued or in a troubled business). P/B of 1–3 is typical for banks and capital-intensive businesses. High-growth or asset-light companies often trade at P/B of 10–50× because their earning power far exceeds their book value.
Is a low P/B ratio always a good buy signal?
No. A low P/B may indicate genuine undervaluation or a value trap. Banks with high NPAs, companies with obsolete assets, or businesses in structural decline often trade below book value — not as a buying opportunity but because the stated book value overstates the actual value of those assets. Always investigate the quality of assets behind the book value.
Why is book value less relevant for tech and service companies?
Book value is based on balance sheet assets. For software, consulting, or consumer brand companies, the most valuable assets are intangible — brand, customer relationships, intellectual property, employee skills. These are not fully captured in book value (or recorded at cost, far below market value). That's why IT companies, FMCG brands, and consumer firms trade at P/B of 10–50× — their intangibles are worth far more than balance sheet assets.
How does book value change over time?
Book value grows when a company retains earnings (net profit not paid out as dividends). It shrinks when a company reports losses, buys back shares above book value, or writes down assets. For banks, book value is especially important — it determines capital adequacy and the ability to absorb loan losses.
What is the difference between book value and intrinsic value?
Book value is an accounting construct based on historical cost of assets minus liabilities. Intrinsic value is an estimate of what the business is actually worth based on its future earning power (typically using discounted cash flow analysis). Intrinsic value is subjective and forward-looking; book value is objective but backward-looking. For most great businesses, intrinsic value far exceeds book value.