investing

book value per share

The net asset value divided by shares outstanding, representing what each share would theoretically receive if the company were liquidated at accounting values.

Example

“With book value per share of $25 and a stock price of $50, the P/B ratio was 2x.”

Memory Tip

BOOK VALUE PER SHARE = accounting net worth per stock unit. The theoretical liquidation value per share.

Why It Matters

Book value per share helps investors assess whether a stock is trading below or above its accounting value, which can indicate whether a company is undervalued or overvalued. This metric is particularly useful when evaluating companies with substantial physical assets, such as banks or manufacturing firms, since it shows what shareholders would theoretically own per share if the company were broken up today.

Common Misconception

Many investors mistakenly believe that book value per share represents what their shares are actually worth in the market or what they would receive if they sold immediately. In reality, book value is based on historical accounting values and does not reflect current market conditions, brand value, or future earning potential, so market price often differs significantly from this figure.

In Practice

Consider a manufacturing company with total assets of 500 million dollars and total liabilities of 300 million dollars, resulting in net assets of 200 million dollars. If the company has 50 million shares outstanding, the book value per share would be 4 dollars per share. However, if the stock trades at 8 dollars per share on the market, investors are paying twice the accounting value, suggesting they believe the company has significant intangible value or growth potential beyond its current assets.

Etymology

BOOK VALUE (accounting value) PER SHARE (for each stock unit). Accounting NET WORTH divided by SHARES.

Common Misspellings

book value per-sharebook value persharebook value per sharee

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