Guides
Book Value: Definition, Formula, and vs Market Value
Book value is what an asset or a company is worth according to its accounting records: original cost minus the amounts written off against it. For a single asset, book value equals cost minus accumulated depreciation. For a whole company, book value equals total assets minus total liabilities, the same figure as shareholders’ equity on the balance sheet. It is a historical, GAAP-based number, not what the market would pay today.
The term shows up in two settings that often get confused. Accountants use “book value” for the carrying amount of one asset on the balance sheet. Investors use “book value” for the net worth of the entire business. Both come from the same idea (recorded cost less what has been subtracted), and both differ, sometimes sharply, from market value.
Book value of an asset (cost minus accumulated depreciation)
The book value of an asset is its original purchase cost minus accumulated depreciation, depletion, or amortization. This figure is also called carrying value or net book value (NBV). It represents the portion of the asset’s cost that has not yet been expensed, not what the asset would sell for.
Formula:
Book value of an asset = Original cost – Accumulated depreciation
Accumulated depreciation is the running total of every depreciation charge recorded since the asset was placed in service, not just the current year. A machine bought for $100,000 with $60,000 of accumulated depreciation has a book value of $40,000. The choice of method (straight-line vs an accelerated method) changes how fast book value falls, which is why two identical assets can carry different book values in the same year. For the mechanics of each method, see depreciation methods explained.
Book value can differ from tax basis. GAAP depreciation and the tax rules (MACRS, Section 179, bonus depreciation) often diverge, so an asset’s carrying amount on the financial statements rarely matches its remaining basis on the tax return.
Book value of equity (total assets minus total liabilities)
The book value of a company, also called book value of equity or net asset value, equals total assets minus total liabilities. It is the same number reported as total stockholders’ equity on the balance sheet, the residual claim owners hold after every creditor is paid.
Formula:
Book value of equity = Total assets – Total liabilities
Equivalently, it builds up from the equity accounts: paid-in capital plus retained earnings, less treasury stock and any accumulated deficit. Because assets are recorded largely at historical cost, book value of equity tends to understate the worth of companies with valuable brands, patents, or self-created software, which may sit at little or no carrying value.
Tangible book value strips out intangibles and goodwill from the equity figure. Analysts use it to see the net worth backed by physical and financial assets, which matters most for banks and asset-heavy firms. To locate these figures on a real statement, see how to read a balance sheet.
Book value per share (BVPS)
Book value per share divides common shareholders’ equity by the number of common shares outstanding. It states the per-share accounting net worth backing each share and is the denominator investors use to judge whether a stock trades above or below its recorded equity.
Formula:
BVPS = (Total equity – Preferred equity) / Common shares outstanding
Subtract preferred equity because preferred holders have a prior claim; what remains belongs to common shareholders. A company with $500 million of common equity and 50 million shares has a BVPS of $10. Share buybacks can raise or lower BVPS depending on whether shares are repurchased above or below their book value, so a rising BVPS does not always signal organic growth.
Price-to-book ratio (P/B)
The price-to-book ratio compares a stock’s market price to its book value per share. It is calculated as share price divided by BVPS, or equivalently market capitalization divided by total book value of equity. P/B shows how much investors will pay for each dollar of recorded net assets.
Formula:
P/B = Market price per share / Book value per share
A P/B below 1.0 can flag a potential value opportunity (the market prices the company below its recorded equity) or signal that the market expects losses or asset write-downs. A high P/B is common for asset-light businesses whose value lives in intangibles the balance sheet does not capture. P/B is most useful for capital-intensive, asset-heavy companies such as banks and insurers, and least useful for software and other intangible-driven firms. It often pairs with return on equity: high ROE tends to justify a high P/B.
Book value vs market value
Book value is the accounting figure from the balance sheet; market value is what buyers will pay today. Book value uses historical cost and depreciation schedules, so it is stable and backward-looking. Market value reflects investor expectations about future cash flows, so it moves constantly. The gap between the two is where valuation judgments live.
| Attribute | Book value | Market value |
|---|---|---|
| Definition | Assets minus liabilities, per accounting records | Price the market will pay right now |
| Basis | Historical cost less depreciation/amortization | Supply, demand, expected future cash flows |
| For a company | Total stockholders’ equity on the balance sheet | Market capitalization (share price x shares) |
| For one asset | Cost minus accumulated depreciation (carrying value) | Fair market value / resale price |
| Volatility | Stable; changes with entries and periods | Fluctuates continuously with the market |
| Intangibles | Often understated or absent | Priced in by investors |
| Best used for | Downside/liquidation reference, ratios | Current worth, acquisition pricing |
A general read: when market value exceeds book value (P/B above 1), the market expects the company to earn more than its recorded net assets suggest. When book value exceeds market value (P/B below 1), the market may see trouble, or the shares may be undervalued. Neither number is “right”; they answer different questions. Cost-based accounting also explains why an asset’s book value can differ from its cost basis for tax purposes.
Frequently asked questions
Is book value the same as shareholders’ equity?
For a whole company, yes. Book value of equity equals total assets minus total liabilities, which is exactly the total stockholders’ equity line on the balance sheet. The terms are used interchangeably at the company level. At the single-asset level, “book value” instead means that asset’s cost minus its accumulated depreciation, a different and narrower measure.
How is book value different from market value?
Book value comes from accounting records: recorded cost less depreciation and liabilities. Market value is what buyers will pay today, driven by expected future cash flows and sentiment. Book value is stable and historical; market value fluctuates constantly. For public companies, book value is total equity, while market value is market capitalization (share price times shares outstanding).
What does a price-to-book ratio below 1 mean?
A P/B under 1.0 means the market values the company below its recorded net assets. This can indicate an undervalued stock or, more often, that investors expect future losses, asset write-downs, or poor returns on equity. P/B is most meaningful for asset-heavy firms like banks and can be misleading for intangible-driven businesses whose value the balance sheet does not fully record.
Why does book value often differ from market value?
Assets are recorded largely at historical cost minus depreciation, so the balance sheet rarely reflects current market prices. Valuable intangibles (brands, patents, self-built software) may carry little or no book value. Market value, by contrast, prices in future growth and those intangibles. The result is a gap that is normal, and the size of the gap is what P/B measures.
How do you calculate book value per share?
Subtract preferred equity from total shareholders’ equity, then divide by common shares outstanding. Preferred equity is removed because those holders have a prior claim. For example, $500 million of common equity divided by 50 million shares gives a BVPS of $10. Investors compare this to the share price through the price-to-book ratio.
Is book value the same as tax basis?
No. GAAP book value uses financial-statement depreciation, while tax basis follows tax rules such as MACRS, Section 179, and bonus depreciation. These schedules usually differ, so an asset’s carrying amount on the financial statements will not match its remaining basis on the tax return, and neither equals the asset’s resale value.
Reviewed by The Ledgerism Editorial Team. Last reviewed: July 2026.