How do I use book value in evaluating a stock?

How much is a company worth and is that value reflected in the stock price?
There are several ways to define a company's worth or value. One of the ways you define value is market cap or how much money would you need to buy every single share of stock at the current price.
Another way to determine a company's value is to go to the balance statement and look at the Book Value. The Book Value is simply the company's assets minus its liabilities.

Book Value = Assets - Liabilities
In other words, if you wanted to close the doors, how much would be left after you settled all the outstanding obligations and sold off all the assets.
A company that is a viable growing business will always be worth more than its book value for its ability to generate earnings and growth.
Book value appeals more to value investors who look at the relationship to the stock's price by using the Price to Book ratio.
To compare companies, you should convert to book value per share, which is simply the book value divided by outstanding shares.
The articles in this series:
Investors looking for hot stocks aren't the only ones trolling the markets. A quiet group of folks called value investors go about their business looking for companies that the market has passed by.
Some of these investors become quite wealthy finding sleepers, holding on to them for the long term as the companies go about their business without much attention from the market, until one day they pop up on the screen, and some analyst "discovers" them and bids up the stock. Meanwhile, the value investor pockets a hefty profit.
Value investors look for some other indicators besides earnings growth and so on. One of the metrics they look for is the Price to Book ratio or P/B. This measurement looks at the value the market places on the book value of the company.
You calculate the P/B by taking the current price per share and dividing by the book value per share.
P/B = Share Price / Book Value Per Share
Like the P/E, the lower the P/B, the better the value. Value investors would use a low P/B is stock screens, for instance, to identify potential candidates.
With thousands of stocks to choose from, developing a systematic approach to evaluating stocks can make it easier to make your selections. The first step is to narrow the options from the thousands of possible choices to ones most likely to meet your objectives. That typically involves screening companies based on criteria important to you. For instance, if you are interested in growth stocks, you might look for earnings growth over a certain percentage. Or for value stocks, you might look for companies with low price/earnings ratios or low price-to-book values.

Once you've narrowed the list, evaluate each company's financial information, comparing it to industry and market information. Some factors to consider include:

Historical prices
It's often useful to review a stock's historical prices and trading volume for at least a one-year period. This gives you a feel for price volatility, the pattern of the stock's movements, and how much interest investors have in the stock.

Earnings per share (EPS)
EPS equals the company's net income after taxes divided by the average number of common shares outstanding. You'll typically want to look for companies with steadily increasing EPS.

Price/earnings (P/E) ratio
This equals the company's share price divided by earnings per share, and is generally considered indicative of how the market values a stock. Review the company's historical P/E ratio, the P/E ratios of other companies in similar industries, and the P/E ratio of the market as a whole. Typically, companies with higher growth rates command higher P/E ratios.

Return on equity (ROE)
ROE equals the company's net income divided by shareholders' equity and is viewed as an indicator of how well a company utilizes shareholders' money.

Price-to-book value
This ratio is calculated by dividing share price by book value, which equals a company's assets less its liabilities, per share. This ratio is typically relevant when evaluating companies with significant assets. Companies with low price-to-book values are often viewed as value stocks.

Price-to-cash-flow ratio
This ratio equals a company's share price divided by cash flow per share. Cash flow equals earnings plus depreciation, amortization, and other non-cash expenses. This ratio can be helpful when evaluating companies with significant noncash expenses.

Price-to-sales ratio
This is calculated by dividing share price by annual sales per share and can be useful when evaluating companies with little or no profits.

Payout ratio
This ratio is calculated by dividing dividends per share by earnings per share and indicates the percentage of profits the company is distributing to shareholders.

PEG ratio
This ratio equals a company's P/E ratio divided by its expected earnings growth rate and is generally useful when evaluating growth stocks.

The decision to purchase a stock can't be made solely from a review of financial ratios. You should also evaluate subjective factors, such as the quality of management, prospects for the company's industry, and where the company stands in relation to competitors.