Definition of Book Shares Stock

A share's book value is an important metric that investors use to determine how valuable a stock is. The formula, which is relatively simple to follow, offers a hint of how the financial viability of a company's stock. Strong book value is one of the key factors that investors like Warren Buffet consider before buying a stock.

Determining Book Share Value

Book value is the total amount of stockholders' equity divided by the number of common shares outstanding. For example, if a company's stockholders' equity is estimated at $24,000,000 and it has 1,000,000 shares of stock, the book value per share is $24.

Measuring Book Value

Knowing a stock's book value means little by itself. To determine whether book value signals a rising value in the company's stock, the investor must compare the book value to the current stock price and past book value. Book value that is rising is considered a positive sign by investors.

Book Value Discount

Value investors look for low price-to-book value ratios. These investors consider a company's stock with a low price-to-book ratio is "trading at a discount." In other words, they believe that the value of the stock is lower than the intrinsic value of the company.

Book Value Proponents

A large group of investors adhere to the value technique, which stresses low price-to-book ratios. One of the pioneers of the philosophy was economist Benjamin Graham, who was known as the "Dean of Wall Street." Also a professor at Columbia Business School, one of Graham's star pupils was Warren Buffett.

Book Value Opponents

While it has proved successful for many, value investing still has its detractors. One criticism is book value measures tangible assets such as property, equipment, and buildings, for instance, and does not take into account intangible assets such as patents and software. With intellectual property becoming an increasingly valuable asset for companies, especially technology firms, critics argue that book value doesn't correctly value a stock.