Definition of Book Value
Book value is the net value of a company's assets as recorded in its balance sheet — i.e., what the company would be worth if it sold all its assets and paid off all its liabilities. It represents the shareholders' equity or net worth of the company from an accounting perspective.
Formula: Book Value = Total Assets − Total Liabilities
The P/B Ratio (Price-to-Book Ratio) compares the current market price to the book value per share. A P/B below 1 suggests a stock might be undervalued (trading below its asset value). However, for asset-light businesses (like IT or FMCG companies), P/B is less meaningful because their primary value is in intangible assets (brand, intellectual property, customer relationships) not captured on the balance sheet. Book value is most relevant for capital-intensive industries like banking, manufacturing, and real estate.