What is Book Value of a Share?
Plain English · theBigBull.ai ⏱ 3 min read
- Book value equals company's net assets divided by total outstanding shares
- Shows accounting value per share, not market price or actual worth
- Useful for comparing share price to company's actual net worth
In Simple Terms
Imagine you and three friends start a samosa business together. You buy equipment worth ₹4 lakh, have ₹1 lakh inventory, but owe ₹2 lakh to suppliers. Your net assets are ₹3 lakh (₹5 lakh assets minus ₹2 lakh debt). If you divided this equally among four partners, each person's share is worth ₹75,000. That's exactly what book value per share means—your accounting share of what's left after paying all debts.
Why It Matters
Book value helps you understand whether a stock is trading above or below its accounting worth. If Tata Motors shares trade at ₹500 but the book value is ₹250, you're paying double the accounting value—investors are betting on future growth. If it trades below book value, the market might see problems ahead, or the stock could be undervalued. Manufacturing and banking companies often get compared to their book values because they have substantial physical assets. However, book value doesn't capture brand value, customer relationships, or future earnings potential—which is why technology companies like Infosys often trade at many times their book value.
Real Example
As of recent filings, State Bank of India (SBI) has a book value of approximately ₹350 per share. This means if SBI theoretically liquidated all assets (loans, property, investments) and paid all depositors and debts, shareholders would get around ₹350 per share based on balance sheet values. If SBI's market price is ₹600, it trades at 1.7 times book value (called Price-to-Book ratio). Banks are often valued using book value because their assets—loans and securities—have reasonably measurable values on the balance sheet.
Common Mistake
Many new investors think book value is the 'correct' or 'fair' price of a share. It's not. Book value uses historical costs from the balance sheet, not current market values. A company might own land purchased 30 years ago at ₹10 lakh, now worth ₹5 crore—but book value shows only ₹10 lakh. Similarly, book value ignores intangible assets like brand reputation, patents, or skilled workforce that create real value. Asian Paints trades at 15+ times book value because its brand and distribution network aren't fully captured in accounting numbers.
Key Takeaways
- Book value per share = (Total Assets - Total Liabilities) ÷ Number of Shares Outstanding
- It's an accounting measure based on balance sheet, not market valuation or future potential
- Most useful for asset-heavy industries like banks, manufacturing, and real estate companies
- Trading below book value might indicate undervaluation or serious business problems requiring investigation
- Technology and service companies often trade at high multiples of book value due to intangible assets
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What is book value per share in simple terms?
Book value per share is the accounting value of one share if the company sold everything it owns and paid all debts. It's calculated by dividing the company's net worth (assets minus liabilities) by the total number of shares. Think of it as your share of what's left on paper.
Is high book value good or bad for a stock?
Neither automatically. A high book value per share simply means the company has more net assets backing each share. What matters more is comparing market price to book value—if you're paying ₹100 for ₹200 book value, that might indicate opportunity. Context and industry matter significantly.
What is the difference between book value and market value?
Book value is the accounting value from the balance sheet based on historical costs. Market value is what investors currently pay for the share in the stock market. Reliance Industries might have book value of ₹800 but market price of ₹2,400 because investors value future earnings and intangibles.
How do you calculate book value of a share?
Take total assets from the balance sheet, subtract total liabilities (including debt), then divide by total outstanding shares. Formula: (Total Assets - Total Liabilities) ÷ Number of Shares. You'll find these numbers in the company's annual report or quarterly results.
Should I buy shares below book value?
Not automatically. Shares trading below book value might be undervalued bargains or might indicate serious business problems, declining industry, or outdated assets. PSU banks sometimes trade below book value due to bad loan concerns. Always investigate why before making any decisions.