(Source: BloombergQuint) 

BQLearning: What Is Book Value? 

BQLearning is a show that seeks to demystify financial markets, economic theories, legal processes and political structures. This series focuses on financial market jargon.

Book value is the value of a company to its equity shareholders. Hence, it is also known as shareholders’ equity or net worth.

It is the value at which an asset or security is carried onto the balance sheet. Book value represents a company’s worth if it liquidated its assets and paid back all its liabilities.

An important ratio while analysing book value is the price-to-book ratio. This ratio is used to compare market value to book value, and helps in analysing if a stock is overpriced or under-priced. A lower price to book ratio could mean that the stock is undervalued.

Anupam Gupta of Aavan Research tells us why price-to-book is an important indicator for identifying red flags in a company’s financials.