What is the book value?

What is the book value?

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The book value comes from the balance sheet of a company and refers to the equity capital, i.e. the balance sheet total minus the liabilities. Under certain circumstances, however, hidden reserves and encumbrances cannot be identified.

Investing based on the P/B ratio with the help of online brokers

If you want to use the book value per share and the P/B ratio as an analysis tool for your 2021 investment, you can rely on the help of online brokers. With providers such as https://online-exness.com/login/, many of these ratios are supplied directly. This makes it much easier to interpret and get an overall picture of the company.

To benefit from these tools, first look for a suitable broker. This should preferably be controlled by state institutions, have a fast and secure software system and have low fees. With Exness, for example, you pay no fees on orders (buying and selling securities) and custody account management. In addition, the spread between the ask price and the bid price is very low.

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The spread is the difference between the ask price and the bid price of a share. You can recognise this difference by the value in addition to which the broker is prepared to buy and sell the share.

When looking for a broker, pay attention to:

  •     Customer service around the clock in English
  •     Positive testimonials
  •     Low spread
  •     Low fees
  •     Well-running and secure system
  •     Licensed in Europe or the USA
  •     Governmental regulatory bodies
  •     Payment possible in euros or US dollars
  •     Provision of charts and key figures such as the KBV

Registering with the broker

To register, simply go to the broker's website and click on Register. Now enter a user name, your real name, e-mail address and possibly a telephone number. Via the e-mail you now click on the confirmation link. To verify your authenticity, an SMS is usually sent or a video chat is conducted with you.

My conclusion on the book value per share

The book value per share is a ratio that is particularly suitable for an initial assessment of companies and their shares. It tells you how much equity is allocated to the securities. Simply put, the figure puts the equity capital in relation to the outstanding shares, i.e. the securities that do not belong to the AG itself.

Even more important than looking at the book value per share itself, however, is to look at the P/B ratio, i.e. the price-to-book ratio. In this case, one compares the company's own valuation based on the figures in the balance sheet with the external valuation based on the share prices. These arise from the interplay of supply and demand.

While the book value only looks at the past, the prices demanded and the shareholders are willing to pay include the future prospects and growth opportunities. These can be realistic or speculative. The P/B ratio shows where there is overvaluation or undervaluation. Many value investors focus on including undervalued securities in their own portfolios.

It is easy to invest in 2021 with the help of online brokers. Compared to banks, these offer lower or no fees and provide all the tools needed to put together the right portfolio. You carry out the analysis yourself and place your order with just a few clicks.

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