What does book value per share indicate?

The book value per share is a financial metric that represents the value of a company's equity attributable to each outstanding share of common stock, calculated based on the company's historical cost rather than its current market valuation. It is derived from the company's total assets minus its total liabilities, divided by the number of outstanding shares. This means it reflects the net worth of the company as recorded on its balance sheet, providing insight into what shareholders would theoretically receive per share if the company were liquidated at its book value.

This historical cost perspective is crucial because it helps investors assess whether a stock is overvalued or undervalued when compared to its market price. While market price may fluctuate due to investor sentiment, market conditions, or future growth potential, book value per share remains tied to the company's historical financial performance and assets.