What is book value?
The book value of stock is the amount of money a shareholder or investor would receive per share, if a company or property sold right now. It's a good place for an investor to start when trying to calculate a stock's potential value to them. Corporate book values are calculated by deducting liabilities from the value of a company's tangible assets.
The book value of an asset is what's shown on a balance sheet, and is calculated by taking the original cost of the asset and subtracting its accumulated depreciation (the total amount an asset has depreciated in value since it was purchased).
Where have you heard about book value?
You may have heard about cars having a 'book value'. The premise is essentially the same the book value of a car is its original value, with any depreciation over time taken into account. When selling your car, you're often told to aim for as close to its book value as possible, to make sure you get the best deal.
What you need to know about book value...
Book value, when measured alongside market value [link], paints a useful picture of a company's real worth to potential investors.
For an asset, despite the book value being an accurate representation of both an asset and a company's worth – see net value asset [link] – the book value itself doesn't always reflect the real worth of an asset, as it doesn't impact an asset's market value.
And for stock, the same issue applies. The book value for stock is a theoretical figure for how much each share is worth. But of course the actual total entirely depends on the stock's market value