Book Value

The book value reflects the actual and real substance of a company and roughly corresponds to the company’s equity. On the balance sheet date, the book value indicates how much the company is worth according to its balance sheet. All assets are added up and reduced by depreciation and amortization and increased by possible write-ups. The company’s liabilities are finally deducted. This calculation results in the book value.

If the equity is negative, the book value per share is also negative, which means that it is not possible to calculate a price-to-book-ratio. If equity is positive, the price/book ratio expresses the current relationship between the share price and the book value. The price/book ratio thus puts the current market’s valuation of the company in relation to the company’s actual substance.