Book value

Book value is the total value of the net assets of a company attributable to - or owned by - shareholders.

Book value is also known as equity, shareholders' funds, or net asset value (NAV). It is the value of all of a company's assets, less all of its liabilities (debts). Book value is sometimes used as an estimate of what a company would be worth if all of its assets were sold for their balance-sheet values. It’s often used as a way to value firms such as banks, housebuilders, and insurers. If you know the book value, you can get an idea of how cheap or expensive a share is by dividing the share price by the book value per share (hence the price/book, or p/b, ratio).

A p/b of below one means that – technically speaking – you can buy the company for less than its assets are worth on paper. In other words, if you could buy the whole company, you could sell everything it owned, and still make a profit.

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