Book value shows how much would formally remain for shareholders if the company sold all assets at book value and settled its liabilities. Per share, it is calculated by dividing shareholders' equity by the number of shares outstanding.
Book value underlies the P/B multiple — the ratio of market price to book value. A value below one means the market values the company cheaper than its accounting capital: this may indicate undervaluation or suggest investors doubt the assets' ability to generate income.
The metric's limitation is that it relies on accounting rather than market valuation. Fixed assets are recorded at acquisition cost less depreciation and may not be revalued for years, while brands and customer bases are not reflected on the balance sheet at all. Therefore, P/B is informative for banks and companies with significant tangible assets but works poorly for businesses whose value lies in intangibles.