Book Value

Book value is a company's total assets minus total liabilities — the accounting net worth that belongs to shareholders, identical to shareholders' equity on the balance sheet. Divide by shares outstanding to get book value per share.

It is what the accountants can count: cash, inventory, buildings, receivables, less everything owed. What it misses is most of what modern markets pay for — brands, network effects, engineering talent — none of which sit on the balance sheet unless acquired. That is why the price-to-book ratio works for banks and insurers and fails for software.

Book value can also be padded with goodwill from past acquisitions. "Tangible book value" strips goodwill and other intangibles out, and is the sterner test credit analysts prefer.