- 1Book Value = Total Assets - Total Liabilities
- 2Book Value Per Share = Book Value ÷ Shares Outstanding
- 3Tangible Book Value excludes intangible assets and goodwill
- 4Stocks trading below book value (P/B < 1) may be undervalued — or distressed
- 5Book value is most meaningful for asset-heavy industries
#What Is Book Value?
Book value is the net asset value of a company according to its financial statements. Think of it as what shareholders would theoretically receive if the company sold all assets and paid all debts.
Book Value = Total Assets - Total Liabilities
Book Value Per Share = Book Value ÷ Total Shares Outstanding
If a company has $100B in assets, $60B in liabilities, and 2B shares, book value per share = $20.
#Tangible vs. Total Book Value
Total Book Value
Includes all assets: cash, property, equipment, AND intangible assets (patents, brand value, goodwill from acquisitions).
Tangible Book Value (TBV)
Excludes intangible assets and goodwill. This is a more conservative measure — it only counts assets you can physically liquidate.
Tangible Book Value = Total Assets - Intangible Assets - Goodwill - Total Liabilities
For banks, regulators focus heavily on tangible book value because intangible assets have little liquidation value.
#Book Value by Industry
| Industry | Book Value Relevance | Why |
|---|---|---|
| Banking | Very High | Regulatory metric, assets close to fair value |
| Insurance | High | Investment portfolios drive value |
| Real Estate | High | Properties are tangible, valued regularly |
| Manufacturing | Moderate | Equipment and inventory matter |
| Technology | Low | Value is in IP, talent, and brand |
| Software | Very Low | Almost no tangible assets |
#When Book Value Matters
1. Value Screening
P/B below 1.0 means the market values the company at less than its accounting net worth. This can signal: - A genuine bargain (the market is wrong) - A value trap (assets are worth less than stated) - A company in decline (assets will shrink)
2. Bank Valuation
P/TBV is the standard metric for valuing banks. A bank trading at 0.8x TBV may be cheap; one at 2.0x TBV is pricing in significant growth.
3. Liquidation Analysis
If you're evaluating a potential bankruptcy or restructuring, book value approximates what's left for shareholders.
#Why Book Value Can Mislead
1. Historical Cost Accounting
Assets are recorded at purchase price minus depreciation, not current market value. A building bought for $10M in 1990 may be worth $50M today but still shows as $3M on the balance sheet.
2. Intangible Economy
In 2026, the largest companies (Apple, Microsoft, Google) derive most of their value from intangible assets that don't appear on the balance sheet.
3. Goodwill Inflation
Companies that make expensive acquisitions pile up goodwill, inflating book value without adding real liquidation value.
#How We Use Book Value
Book-to-market (the inverse of P/B) is one component of our Value factor, alongside earnings yield and cash flow yield. Following Arnott et al. (2021), we're mindful that traditional book value understates the assets of intangible-heavy businesses.
Last updated: February 5, 2026