TLDR:
Book value is the net value of a company’s assets minus its liabilities, as recorded on its balance sheet, representing the theoretical liquidation value of the company.
Book Value vs. Market Value
Book value is backward-looking (historical cost). Market value reflects future expectations and intangibles. Growth companies typically trade at a significant premium to book value.
Book Value vs. Market Value in Practice
For most modern businesses — particularly technology companies — book value severely understates true economic value because it doesn’t capture intangible assets like brand, intellectual property, customer relationships, or human capital. A company like Salesforce may have a book value of a few billion dollars but a market capitalization of hundreds of billions, reflecting the market’s valuation of its future earnings power and competitive moat. This disconnect is even more extreme for startups, where the vast majority of value is tied to future potential rather than current tangible assets.