Book Value

Book value is a company’s net worth on paper: total assets minus liabilities.

How investors use it

Book value matters most for banks, insurers, and asset-heavy industrials. For tech and services, weight it lightly and lean on earnings or cash-flow multiples instead.

Worked example

A real-world scenario

A shipping company’s fleet of vessels is carried on its books at purchase price minus depreciation. After a decade, the balance sheet shows a low book value even though the ships are worth far more at today’s market rates. An investor who screens strictly on P/B sees an expensive stock, while one who knows the fleet’s real market value sees a bargain. The reverse happens with a brand: a consumer company’s most valuable asset — its name — does not appear on the balance sheet at all.

Common confusion

Intangibles and depreciation make book value a rough, sometimes stale, number.

Why it matters

It is the floor reference for what a business owns outright.

Key takeaway

Book value is a company’s accounting net worth, and its usefulness depends entirely on how real the assets are. For banks and insurers, book value is a meaningful floor; for brands and software, it understates the true value and tells you little. Depreciation and intangibles can push it far from market reality in either direction. Match the tool to the business: use book value where assets are tangible and marked-to-market, and rely on earnings or cash flow elsewhere.

Definitions reviewed by the Investing Glossary editorial team.