Book value

Book value is the calculated value of a company based on its balance sheet: total assets minus all debts.

Calculation:

Book value = total assets − total liabilities (debt)

Book value per share:

Book value ÷ number of shares

P/B ratio (price-to-book ratio, German: KBV):

• P/B = share price ÷ book value per share
• P/B below 1: the share costs LESS than the company's assets – potentially undervalued (but: why does nobody want to buy it?)
• P/B 1–3: fairly valued
• P/B over 5: expensive (but tech companies often have high P/B ratios because of intangible value)

Limitation: book value does NOT take into account intangible value (brand, patents, know-how). Apple has a book value of ~$60 bn but a market value of ~$3 trillion – because the brand and the ecosystem are enormously valuable.