Book Value vs. Market Value

Book value and market value are two valuation methods investors use to assess a company’s or an asset’s worth. Book value represents a company’s value based on its latest financial statements. On the other hand, market value showcases the current price at which investors are buying and selling an asset or company on the open market.

Understanding the differences and how these valuation metrics work can help you identify both undervalued and overhyped stocks and make more informed investment decisions.

Book value vs. market value: A quick comparison

What is book value?

The book value of a company is a measure of the amount of money that would be left for shareholders if the business liquidated all its assets and paid off all its debt.⁽¹⁾ Unlike market value, book value is based on accounting figures and offers a look into the total worth of a business through hard, financial metrics.

Like all other metrics, book value is not a “one-stop shop” for valuing a company. Sure, it provides some baseline measure as to the intrinsic worth of a company, but it doesn’t factor in influential intangibles, such as brand power or growth potential.

With that said, book value does play a part in a holistic analysis of a company’s valuation. In particular, businesses trading below the value of their actual net assets are a prime target for conservative long-term value investing, as they are quite often undervalued.

Book value formula

While it is tied to accounting figures, book value is not particularly hard to calculate. The formula to do so is simply:

To use a straightforward hypothetical example, a business with $60 million in assets but $35 million in liabilities would have a book value of $25 million.

So, where does one find a company’s book value? The latest iteration of a business’s balance sheet, which is typically updated with each quarterly report.

Book value per share (BVPS)

Book value per share (BVPS) is a per-share valuation metric that tells an investor how much equity would be available for each common share if the company were liquidated.⁽³⁾

To calculate BVPS, use the following formula:

BVPS is derived from the same accounting data as book value, updated with financial statements, typically quarterly. It helps investors identify potentially undervalued stocks by comparing BVPS to the stock price, but it is just one lens for analysis. BVPS should be evaluated alongside peers, competitors, the broader market and a company’s future growth prospects, as it doesn’t capture intangibles or operational dynamics.⁽³⁾

What is market value?

Market value, often called market capitalization or market cap, is the sum dollar value of a company based solely on its current stock price.⁽²⁾ In essence, this metric tells us how much investors are currently willing to pay for all of a company’s outstanding shares.

Book value fluctuates and changes, but since it is based on accounting data typically released quarterly, those fluctuations are rare. In contrast, market cap changes constantly, and in companies with large amounts of shares outstanding, market value can fluctuate to the tune of billions of dollars on a single day.

Market value tends to rise if investors believe the company has strong growth potential or if news boosts confidence. Conversely, it can fall sharply if earnings disappoint or market sentiment shifts. That’s why market value is often more volatile than book value and may not always align with the company’s actual fundamentals.

Market value formula

Calculate market value using this simple formula:

As most companies have millions of shares outstanding, the calculations can appear daunting, but market value is really quite a simple affair. To use an example, a company with 5 million units of stock outstanding trading at $15 per share has a market value of $75 million.

This figure updates constantly, as stock prices fluctuate during trading hours, so too does a company’s market value.

Lastly, unlike book value, intangibles affect market value, as factors such as brand equity, patents, economic moats or future growth potential all have an impact on stock prices.

Key differences: Book value vs. market value

While book value and market value can seem interchangeable at first glance, they often paint very different pictures of a company’s worth. Comparing the two can reveal how the market perceives a business versus what its balance sheet shows — and that gap can signal either opportunities or risks, depending on additional factors.

If a company’s book value is greater than its market value

If a company’s book value is higher than its market value, it may signal that the stock is undervalued. This could result from negative short-term sentiment, market oversight or temporary performance issues. Provided that the business in question is healthy and can recover, such instances may provide an opportunity to invest in high-quality companies at a discount.

However, a low market value relative to book value can also reflect deeper concerns, such as declining profitability, poor management or a shrinking industry presence. So, while a low market value relative to book value might look attractive, it’s not always a buy signal without further analysis and factoring in the wider context.

If a company’s market value is greater than its book value

This is common, especially in fast-growing industries like tech. When investors expect strong future performance, they’re often willing to pay well above a company’s book value.

A high market value can reflect intangible assets like brand recognition, intellectual property or customer loyalty — none of which are captured in book value. However, it also increases the risk of overvaluation if, for example, high expectations in terms of growth aren’t fulfilled.

When a company’s book value and market value are the same

Although a relatively rare sight, having a roughly equivalent market value and book value means that the market sees the company’s worth as exactly what its balance sheet reflects — no more, no less. It can imply a mature business with stable earnings and modest growth expectations.

In such cases, the stock may be fairly valued, offering fewer surprises — good or bad — for investors.

Price-to-book ratio

A price-to-book (P/B) ratio, or market-to-book ratio, is a metric that contrasts market value with book value.⁽⁴⁾ To calculate this ratio, use the following formula:

The P/B ratio helps investors assess how a company’s market valuation compares to the value of its net assets. Values under 1 typically indicate an undervalued stock — the operative word here being typically. Moreover, a P/B value above 1 does not necessarily imply that a stock is overvalued — rather, this can also mean that high growth expectations or strong intangibles are at play.

For example, say a company’s BVPS is $50 and its current share price is $100. Its P/B ratio is 100 / 50 = 2. Put another way, the company’s stock trades at twice the value of its net assets. This could signal overvaluation, but it could also be justified by strong growth potential.

As always, analyzing context is essential. A low P/B ratio isn’t always good — it might reflect financial trouble or stagnant growth. Similarly, a high P/B ratio doesn’t automatically mean overvaluation, especially in sectors where book value underrepresents real worth. To use the most obvious examples, industries like software and biotech cannot be fairly analyzed solely through the lens of book value.

The price-to-book ratio shines when used as a metric to compare companies that operate in the same sector or industry, especially with asset-heavy business models, such as banks, insurers or manufacturers.

Bottom line

Book value and market value offer two very different ways of looking at a company — one is grounded in a business’s balance sheet, and the other serves as a broad representation of market sentiment.

Knowing what book value and market value represent, what we can learn from these metrics and how to place them in their proper context is essential for those who want a solid, holistic understanding of a company’s valuation before deciding to invest.

Whether you’re comparing companies or screening for value plays, these metrics offer useful starting points — especially when paired with other tools like the price-to-book ratio.

Frequently asked questions

Are market value and book value the same?

No, they measure two different things. Book value reflects a company’s net worth based on its financial statements. Market value, on the other hand, is what investors are willing to pay for the company right now. Market value changes constantly and reflects expectations, investor sentiment and growth prospects. In short, book value is based on accounting data; market value is driven by stock prices, and, more broadly, price action.

What if the book value is more than the market value?

If book value is higher than market value, it may suggest the stock is undervalued — that the market hasn’t fully recognized the company’s intrinsic worth.

But it can also raise red flags. Investors might be pricing in future risks like slowing revenue, high debt or poor management. It’s a scenario worth investigating: sometimes it points to an overlooked bargain, other times to a business in decline.

Is a high book value per share good?

A high book value per share (BVPS) is not always good. A high BVPS indicates a strong underlying asset base relative to share count, which can be a positive sign of financial stability.

However, it doesn’t guarantee a high stock price or strong returns. Many growth companies have low or even negative BVPS but still perform well in the market. It’s one data point — helpful when comparing asset-heavy businesses, but less relevant for companies driven by intangibles like software or brand equity.

To make sure you get accurate and helpful information, this guide has been edited by Matt Miczulski as part of our fact-checking process.

Written by

Shane Neagle

Contributor

Shane's career started with the US Department of Defense where he performed research for 8 years. He then studied philosophy and became fascinated by the ways in which technology and finance can consolidate to impact the world's socio-economic order. To date, he has written hundreds of articles with various insights into digital assets, trading, investing, and the ways in which technology can be used to further optimize the stock trading and settlement processes. His work has been featured in Yahoo Finance, Nasdaq, Bitcoin Magazine, Investing.com, Tokenist, and others. See full bio