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StockCram is not a broker-dealer, investment adviser, or financial institution. All content is for educational and informational purposes only and should not be construed as personalized investment advice. Consult a qualified financial professional before making investment decisions. Past performance does not guarantee future results.Simple Definition
What a company would be worth if it sold everything and paid all debts.
Why It Matters
Book value is a company's net worth on paper - total assets minus total liabilities. If a stock trades below book value, you're theoretically buying $1 of assets for less than $1. Value investors like Benjamin Graham (Warren Buffett's mentor) loved buying below book value. But beware: some assets (like a failing factory) may be worth less than stated.
Key Points
- Price-to-Book ratio (P/B) = Stock Price ÷ Book Value per Share. Below 1.0 might signal undervaluation
- Tech companies often have high P/B ratios because their value is in intangibles (software, brands) not physical assets
- Banks and insurance companies are often valued using P/B because their assets (loans, investments) are closer to true value
Related Terms
Common Questions
What a company would be worth if it sold everything and paid all debts. Book value is a company's net worth on paper - total assets minus total liabilities. If a stock trades below book value, you're theoretically buying $1 of assets for less than $1.
Book value is a company's net worth on paper - total assets minus total liabilities. If a stock trades below book value, you're theoretically buying $1 of assets for less than $1. Value investors like Benjamin Graham (Warren Buffett's mentor) loved buying below book value. But beware: some assets (like a failing factory) may be worth less than stated.
Price-to-Book ratio (P/B) = Stock Price ÷ Book Value per Share. Below 1.0 might signal undervaluation
Tech companies often have high P/B ratios because their value is in intangibles (software, brands) not physical assets
Banks and insurance companies are often valued using P/B because their assets (loans, investments) are closer to true value