What is the Book Value of a Share?

Imagine you bought a kirana shop. It includes: shelves, counter, stock, and fridge = ₹10 lakh. You took a loan of ₹4 lakh to buy it. So, what’s yours? ₹10 lakh (stuff you own) - ₹4 lakh (loan you have to pay) = ₹6 lakh. This ₹6 lakh is your book value. Here we will understand the book value of a share.

About the Book Value of a Share

The Book value of a share is the equity general to shareholders divided by the total number of outstanding shares. It is what a company is worth if it is sold off today, and all debts are paid.

In simple terms, what a company owns, what it owes = the real value left. But if the company were shut down today, sold everything, and paid all loans, the book value is what’s left for shareholders.

Imagine the company as a house.

• The house has walls, furniture, land, and maybe a car parked outside.
• Now, imagine you subtract any loans or pending EMIs on that house.
• Whatever is left over is the Book Value.

"In finance terms: Book Value = Total Assets - Total Liabilities"

For example,

Let’s take a real company from the Indian stock market - Infosys Ltd.

Assume:

Particulars	Amount (₹ Crores)
Total Assets	₹1,50,000
Total Liabilities	₹50,000
Book Value (Assets - Liabilities)	₹1,00,000

If Infosys has 4,000 crore shares outstanding, then:

Book Value = Total Assets - Total Liabilities

= ₹1,50,000 - ₹50,000

= ₹1,00,000

Book Value per Share = ₹1,00,000 crore ÷ 4,000 crore = ₹25 per share

How to Calculate the Book Value of a Share?

Here is how to calculate the BVPS:

• Get Total Assets: From the company’s balance sheet (includes buildings, machinery, cash, etc.)
  
• Subtract Total Liabilities: Loans, debts, dues, etc.
  
• Divide by Total Number of Shares Outstanding: This gives Book Value per Share.

The formula of BVPS is:

"Book Value Per Share  = Shareholder Equity – Preferred Equity / Number of outstanding common shares"

Where,

• Shareholders’ Equity = Total assets - Total liabilities 
• Preferred Equity = it is subtracted because preferred stockholders have a higher share than common shareholders.

Example of BVPS

For Example, suppose that a company has,

	Value
Total Assets	₹20,00,000
Total Liabilities	₹8,00,000
No preferred Stock	N/A
Outstanding shares	₹20,000

Calculate the shareholders’ equity: ₹20,00,000 – ₹8,00,000 = ₹12,00,000   

BVPS = 12,00,000 / 20,000

= ₹60                                                            

So if the company had ₹ 2,00,000 in preferred stock, the calculation would be:

BVPS = 12,00,000 – 2,00,000 / 20,000 

= 10,00,000/ 20,000

= ₹50       

Why Should Investors Care About Book Value?

Book value is like the true value of a company on paper. It’s important because it helps investors answer one basic question: “If I buy this share, am I paying too much, too little, or just right?” So here’s why it matters:

Shows the Real Worth of a Company

• Book value is what the company actually owns (after paying off all loans).
• It’s like checking a person’s net worth after removing their debts.
• It gives you a sense of what’s backing your investment.

Example: If a company’s book value is ₹100 and the stock is selling at ₹80, that’s like buying something worth ₹100 for just ₹80. That’s a potential bargain!

Helps Spot Undervalued Stocks (Hidden Gems)

• Stocks sometimes trade below book value.
• That can happen if people are ignoring the company or if there’s temporary bad news.
• Smart investors buy such stocks before others realise the value.

Example: Tata Steel’s book value might be ₹850, but the market price is only ₹160. That could be a sign the stock is undervalued or something’s wrong. That’s for you to check.

Acts Like a Safety Net in Crashes

• If the market crashes, stocks with high book value usually don’t fall as much.
• Because they have real assets like land, factories, cash, etc.
• Think of it like a building with strong foundations. It doesn’t collapse easily.

Helps in Comparing Companies

If two companies are in the same sector: 

Company	Book Value	Price	P/B Ratio
Company A	₹100	₹200	2.0
Company B	₹100	₹120	1.2

Company B looks cheaper compared to Company A. Book value helps you compare apples to apples.

Helps Long-Term

• Investors and Traders look at short-term trends.
• But long-term investors (like Warren Buffett) love looking at book value.
• Why? Because it shows how solid the company really is, not just market hype.

Difference Between Book Value Per Share vs Market Value Per Share

Here are the differences between:

Feature	Book Value per Share	Market Value per Share
What it is	Accounting value of a share	The price at which the share trades in the market
Source	Company balance sheet	Stock market
Updated	Quarterly/yearly	Live (changes every second)
Can it be manipulated?	Less likely	Yes, due to market emotions
Usefulness	Good for long-term evaluation	Good for timing entry/exit

Imagine you're buying a second-hand car.

• The car's original parts (engine, tyres, etc.) minus the damage is like Book Value.
  
• The price that people are willing to pay on OLX is the Market Value.
  

Just like some people might pay more for a brand name, some stocks trade higher than their book value due to future expectations.

Also read: What is Market Capitalization? Explained with Indian Examples

Conclusion

In conclusion,

Book Value Per Share (BVPS) tells you what each share is really worth on paper. It’s not the only thing to look at, but it’s a great starting point. It gives you a safe and honest picture of the company’s value. So we hope this blog has been helpful to you.