As a stock trader, you must have read the term “Book Value” at one point or the other. The book value of a stock is simply how much the stock of a company is worth purely from an accounting perspective, and thus, when a stock is trading below its book value, it is a sign that the stock is undervalued.

Now how do you calculate the book value of a stock? Well, here’s the formula:

Book Value of a Stock = (Total Assets of the Company – Total Liabilities of the Company)/(Total Number of Common Shares)

So, let’s assume that a company with stock symbol XYZ has a total assets of $2 billion, total liabilities of $1 billion, and 100 million public shares, let’s calculate it’s book value…

Book Value(XYZ) = ($2,000,000,000 – $1,000,000,000)/100,000,000 = ($1,000,000,000/100,000,000) = $10

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