Book value is based on historical costs, not current values, but can provide an important measure of the relative value of a company over time.
Book value can be figured as assets minus liabilities, or assets minus liabilities and intangible items such as goodwill; either way, the figure that results is the company's net book value.
You can also compare a company's market price to its book value(P/B) on a per-share basis. Divide book value by the number of shares outstanding to get book value per share and compare the result to the current stock price to help determine if the company's stock is fairly valued. Most stocks trade above book value because investors believe that the company will grow and the value of its shares will, too. When book value per share is higher than the current share price, a company's stock may be undervalued and a bargain to investors. In fact, the company itself may be a bargain, and hence a takeover target.
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