If you’ve ever wondered—“Why is this stock price so high when the company doesn’t even make that much profit?” or “Is a low-priced stock always a good deal?”—you’re not alone. These are the most common beginner questions in the Indian stock market.
Let’s say you’re a freelancer in Hyderabad. You recently saw a company’s stock trading at ₹1,500, but it’s real worth on paper looked way less. Is it a scam? Not necessarily. This is where two key terms come in—book value and market value.
In this guide, I’ll walk you through these concepts using examples—so you can understand them.
What Is Book Value? (The Company’s Actual Worth on Paper)
Book value is simply the net worth of a company according to its balance sheet. It tells you what the company owns minus what it owes.
Think of It Like This:
Imagine a mobile repair shop in Nagpur:
- Total assets: ₹10 lakh (tools, spare parts, and shop furniture)
- Liabilities (loans and dues): ₹6 lakh
- Book value = ₹10 lakh – ₹6 lakh = ₹4 lakh
If the shop shut down and sold everything, ₹4 lakh is what the owner would get after paying off all debts. That’s the shop’s book value.
Formula: Book Value = Total Assets – Total Liabilities
Where Do You Find It? You can find the book value in a company’s balance sheet—usually under “Shareholders’ Equity” or “Net Worth” in the annual report.
What Is Market Value? (The Price Investors Are Willing to Pay)
Market value is what the stock market believes a company is worth. It’s based on share price and total number of shares.
Example:
Let’s say you’re an online seller from Jaipur who bought a scooter last year for ₹40,000. Today, due to demand, buyers are willing to pay ₹55,000—even though the book value (after depreciation) is just ₹30,000. That ₹55,000 is the market value.
In the stock market, the same logic applies. A company’s share price reflects what investors believe about its future—profit potential, brand image, and market excitement.
Formula: Market Value (or Market Cap) = Share Price × Total Number of Outstanding Shares
Example
If a company has:
- Share price = ₹500
- 10 lakh shares
Market Value = ₹500 × 10,00,000 = ₹50 crore
Why the Difference Between Book Value and Market Value Matters
Let’s say you run a small bakery in Indore:
- Equipment and supplies = ₹5 lakh (book value)
- But because of your loyal customer base and rave reviews, a buyer offers ₹15 lakh
That extra ₹10 lakh is your market value advantage—it reflects brand value, customer trust, and future profit potential.
The same thing happens with companies. Investors often pay more than the book value if they expect future growth, high earnings, or believe in the company’s brand.
Common Scenarios and What They Mean
| Scenario | What It Means | Example |
| Market Value > Book Value | Investors expect strong growth | Tech companies |
| Market Value < Book Value | Market has low confidence | Struggling firms or cyclical industries |
| Market Value is almost equal to Book Value | Market sees company as fairly priced | Established businesses like cement or banks |
Book Value Per Share (BVPS): Know What Each Share Is Worth
BVPS tells you the portion of book value assigned to each share. It’s useful when comparing stock price to actual worth.
Formula: Book Value Per Share (BVPS) = Book Value / Total Number of Outstanding Shares
Example:
If a company has:
- Book Value = ₹100 crore
- Shares = 1 crore
- Book Value Per Share (BVPS) = ₹100 crore ÷ 1 crore = ₹100 per share
If the share price is ₹150 and BVPS is ₹50, it means investors are paying 3 times the paper worth.
Always compare Book Value Per Share (BVPS) with the share price. If the price is too high without strong earnings, you may be overpaying. But a low BVPS doesn’t always mean it’s cheap—it depends on the business type.
Price-to-Book (P/B) Ratio: A Shortcut to Spot Cheap or Expensive Stocks
The P/B Ratio shows how much the market is paying for ₹1 of the company’s net assets.
Formula: P/B Ratio = Share Price / Book Value Per Share
Interpretation:
| P/B Ratio | What It Could Mean |
| Less than 1 | Possibly undervalued—worth a closer look |
| Around 1 | Fairly valued |
| Greater than 1 | Investors expect growth or strong performance |
Example 1:
You run a textile business in Surat:
- Total book value = ₹15 lakh
- Someone offers to buy your firm for ₹40 lakh
- P/B = ₹40 lakh ÷ ₹15 lakh = 2.67
This means the buyer sees future potential and is willing to pay nearly 3x for it.
Many legendary investors like Warren Buffett love low P/B stocks—but only when the company is fundamentally strong.
Example 2:
- Share Price: ₹1,500
- BVPS: ₹300
- P/B Ratio = 5
- Interpretation: Investors believe in the future growth, brand strength, and profitability.
Example 3:
- Share Price: ₹550
- BVPS: ₹375
- P/B Ratio = 1.47
- Interpretation: This company is more conservatively priced. It might offer stable returns.
When to Use Book Value and When to Trust Market Value
Use Book Value When:
- You want to find undervalued stocks with strong assets
- Investing in asset-heavy sectors like real estate, banks, or manufacturing
- Looking for long-term value in a stable company
Use Market Value When:
- The company’s brand or technology is its main strength (like startups or IT firms)
- You’re tracking investor sentiment or trying to ride positive momentum
Quick Beginner Tips for Investors
| Tip | Why It Matters |
| Always check both book and market value | It gives a full picture of the company |
| Compare companies within the same sector | IT firms and banks work very differently |
| Use P/B Ratio with other tools like PE or ROE | Avoid relying on one number only |
| Watch for high P/B + poor earnings | May indicate overvaluation |
Conclusion
Understanding book value vs market value is one of the smartest first steps in your investing journey. It helps you judge whether you’re getting a good deal—or falling for market hype.
You now know:
- What book and market value mean
- How to calculate and compare them
- When each matters, and what to look out for
Whether you’re a freelancer, or a small manufacturer—these tools will help you build confidence.
