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Book value shows the value of a company’s net assets after deducting all its liabilities. It indicates how much of the company’s accounting value remains available for equity shareholders after the company pays all its debts and other obligations.
Mathematically, this relationship can be expressed as follows:
Book Value = Total Assets – Total Liabilities
Book Value Per Share = Shareholder’s EquityNumber of Outstanding Shares
For example, suppose a company has ₹500 crore in shareholders’ equity and 50 crore outstanding shares. Now, its book value per share is ₹10. Realise that the book value is based on the company’s financial statements. It does not indicate that shareholders would receive ₹10 per share if the company were to sell all its assets or be liquidated.
In comparison, “market value” is the current price at which a company’s shares trade in the stock market. It reflects what investors are willing to pay for the shares based on factors, such as:
Earnings
Growth expectations
Demand and supply, and
Market conditions.
Book Value vs Market Value in India
Basis
Book Value
Market Value
Meaning
The value of a company’s net assets after deducting its liabilities.
The current value of the company’s shares based on the stock market price.
Calculation
Total Assets – Total Liabilities
Share Price × Number of Outstanding Shares
Based on
Figures recorded in the company’s financial statements.
Investor demand, supply, expectations, and prevailing market conditions.
Price Movement
Usually, changes occur when the company’s assets, liabilities, or equity change.
Can change throughout the trading session as the share price changes.
Primary Usage
Book value per share is used in calculating the Price-to-Book (P/B) ratio.
Market value is used as the numerator in the P/B ratio through the share price.
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