Book Value
Book value is the net asset value of a company as recorded on its balance sheet — total assets minus total liabilities — and represents the theoretical amount shareholders would receive if the company were liquidated at accounting values.
Book value is the balance sheet's summary of a company's net worth in accounting terms. It equals total assets (cash, property, equipment, investments, inventory, intangibles) minus total liabilities (loans, accounts payable, deferred revenue, pension obligations). What remains is the equity attributable to common shareholders — also called shareholders' equity or net worth — which divided by shares outstanding gives book value per share.
For most of its history, Berkshire Hathaway used growth in book value per share as a proxy for growth in intrinsic value, reporting it alongside the S&P 500 total return in its annual letter. Between 1965 and 2019, Berkshire compounded book value per share at roughly 19% annually, dwarfing the S&P 500. In 2019, Buffett announced he would no longer highlight book value per share growth as the primary metric, arguing that the shift toward operating businesses (rather than just securities) made book value a less reliable proxy for intrinsic value.
Tangible book value per share is a stricter version that subtracts goodwill and identifiable intangible assets from book value. When companies make large acquisitions at premiums to book, the excess purchase price over the acquired company's net assets is recorded as goodwill on the balance sheet. Goodwill is not a hard asset — it cannot be sold or collateralized easily — so some analysts strip it out to get a harder, more conservative measure of net assets.
Market value frequently diverges from book value. High-quality franchises with strong brands, loyal customers, and high ROIC trade at significant premiums to book because the market recognizes value that GAAP accounting does not capture. Coca-Cola's brand alone is estimated to be worth tens of billions of dollars, but the accounting rules do not allow internally generated intangibles to appear on the balance sheet at fair value. Conversely, distressed companies or those with impaired assets may trade below book value, which can be an opportunity or a warning.
In banking, book value takes on special importance. Bank regulators require financial institutions to maintain minimum levels of tangible common equity relative to risk-weighted assets. A bank trading below tangible book value faces stigma and may indicate the market believes hidden losses in the loan portfolio will further erode equity — a dynamic that played out vividly during both the 2008 financial crisis and the 2023 regional bank stress.