Practical Guide: How to Understand Net Book Value and Other Prices You See on the Stock Market

When you open your trading portal, you see a price. But that number hides three different realities that every investor must master: the issuance price, the company’s book value, and what the market truly believes it is worth. We teach you how to distinguish and use them without errors.

Why you need to know this now

Beginners often make the same mistake: confusing the price they see on the screen with what a stock is actually worth. The result is that they buy expensive or miss opportunities. The difference between these three valuation concepts is what separates profitable investors from those who lose money without knowing why.

Three ways to calculate what a stock “is worth”

Each method starts from different data and tells a different story about the same company.

Starting point: the nominal value

It’s the simplest. When a company goes public, it sets a share capital and divides it among all the shares issued. Result: the nominal value.

In practice, it’s of little use for stocks because companies do not return that initial capital to shareholders. However, in convertible bonds, it matters because it establishes the price at which you can exchange them for shares in the future.

Basic formula: Share Capital ÷ Total Number of Shares = Nominal Value

Example: BUBETA S.A. has €6,500,000 in share capital and 500,000 shares. The nominal value is €13 per share. That was the initial price, but nothing guarantees it’s what it’s worth today.

What accounting reveals: the net book value

Here’s where things get interesting. This method tells you: “What’s left for the company if it liquidates today?” Assets minus liabilities, divided by the number of shares.

Formula: (Assets - Liabilities) ÷ Number of Shares = Net Book Value

Example: MOYOTO S.A. has €7,500,000 in assets, €2,410,000 in debts, and 580,000 shares issued. The net book value is €8.775 per share. That’s what theoretically belongs to each shareholder if the company liquidated today.

This concept is crucial in value investing, Warren Buffett’s strategy. Value investors look for companies whose market value is below their net book value. If you pay less than what the company is truly worth on the books, you have a margin of safety.

Market reality: the market price

It’s the most important because it’s the only one that matters when you buy or sell. It’s calculated by dividing the total market capitalization by the number of shares.

Formula: Market Capitalization ÷ Number of Shares = Market Value

Example: OCSOB S.A. has a market capitalization of €6.94 billion and 3,020,000 shares issued. The stock price is €2.298. That’s the real price at which you buy and sell.

What each one tells you (and what it doesn’t)

The nominal value: It tells you where it all started. Nothing more. It’s not useful for deciding if a stock is expensive or cheap.

The net book value: It shows whether a company is undervalued or overvalued relative to its equity. But it has serious limitations:

• In tech companies, many assets are intangible (patents, brands, talented teams) that don’t appear on the balance sheet.
• In small companies, it produces misleading results.
• Creative accounting exists: companies manipulate their numbers.

That’s why the Price/Book Value ratio (P/VC) is useful but never decisive on its own.

The market price: It tells you exactly how much you can buy or sell at this moment. Nothing more. It doesn’t tell you if it’s expensive or cheap, only the fact.

When to use each: real cases

To find opportunities with the net book value

Imagine you want to invest in gas companies in the IBEX 35. You compare the P/VC of ENAGAS and NATURGY. If ENAGAS has a lower ratio, it means it’s cheaper on the stock market relative to its book value. That makes it more interesting if both companies have similar fundamentals. It’s a first clue, not the absolute truth.

Remember: you should also verify balance sheet quality, business model, sector prospects, and many other factors. The ratio is just a tool.

For day-to-day trading: the market price

It’s what you see on your screen every second. If you buy META PLATFORMS shares at €113 and expect them to fall further tomorrow, you set a limit buy order at €109. The order only executes if the price drops to that level. The market price is your reference for entry and exit.

Trading hours vary by market (Spain: 9:00-17:30, US: 15:30-22:00, Japan: 2:00-8:00). Outside those hours, you can only leave pre-set orders.

The risks of relying too much on each method

Nominal value: Its main problem is that it’s almost useless. It changed little after going public and reflects a historical reality, not the current one.

Net book value: Fails especially with small companies, startups, and tech firms. Their most valuable assets are not on the balance sheet. Also, accounting can be manipulated.

Market price: It’s the most unpredictable. External factors (interest rate policies, sector sentiment, macroeconomic news, speculative euphoria) can disconnect it completely from the company’s real value. The market overreacts constantly to news, sometimes baseless.

Summary: what to do

Conclusion: how to use it without mistakes

The key is context. The net book value is excellent for filtering candidates, but don’t invest solely based on that. The market price is the only one that matters for trading, but don’t take it as a measure of real value. Combine these three concepts: understand where each share comes from, what its book value suggests, and then make decisions based on the actual price you will pay.

Complete fundamental analysis includes ratios like PER and EPS, in addition to these concepts. It’s not just about reading an article. But now you have the foundation to avoid the most common mistakes.