Nominal value, book value, and market value: which to use according to your investment strategy

When analyzing a stock, you encounter three different numbers that apparently say the same thing but actually tell completely different stories. The nominal value, book value, and market value are the three compass points every investor must learn to read.

The starting point: where the numbers come from

Each of these values is calculated in a radically different way, and that difference determines what information it provides.

Nominal value: is the simplest and also the least relevant for the stock market. It is obtained by dividing the company’s share capital by the total number of shares issued. Example: if a company has a capital of €6,500,000 and issues 500,000 shares, the nominal value is €13 per share. Practical utility? Almost none in equity investing.

Book value: here things get interesting. You take the company’s assets, subtract liabilities, and divide the result by the number of shares issued. A company with €7,500,000 in assets and €2,410,000 in liabilities, with 580,000 shares issued, would have a book value of €8.775 per share. This number reveals what the accounting says about the company’s actual equity.

Market value: is what you see on your trading screen. It is calculated by dividing the market capitalization by the number of shares. A company with a market cap of €6,940 million and 3,020,000 shares has a market value of €2.298 per share. This number reflects what the market thinks the company is worth at this very second.

Three different stories about the same stock

The nominal value tells the oldest story. It is the issuance price, the zero point from which everything started. In the stock market, it has little relevance because shares have no maturity. In fixed income, it carries more weight, but in stocks, it is more of a historical data point than an investment tool.

The book value is what auditors and accountants say the company is truly worth if you dismantled it today. It reflects net equity divided by share. If the market price is below the book value, some analysts see a buying opportunity. If it’s well above, it may be a sign of overvaluation. This value is favored by value investors, the style made famous by Warren Buffett: looking for good companies at a good price.

The market value is different: it doesn’t tell you if something is expensive or cheap, only what the price is. It is the intersection of buy and sell orders in real time. When it rises or falls, it reflects changes in expectations, news, market sentiment, monetary policy, everything.

How to use them in your real strategy

For value investing: the book value is your main tool. Compare the Price/Book ratio (P/VC) among companies in the same sector. If one gas company has a P/VC of 0.8 and another 1.2, the first is cheaper relative to its book value. That’s your starting point. Then you deepen the analysis, of course, but this ratio saves you time filtering candidates.

For trading: the market value is your only operational reference. It’s what you pay when you buy and what you receive when you sell. If you want to wait for META PLATFORMS to fall from $113.02 to $109.00, you place a limit buy order and wait. The market decides if your price is reached or not. During after-hours, you can only set pre-established orders that will execute if the price is hit in the next session.

For convertible bonds: the nominal value has a small second life. These securities set a conversion price (generally a percentage of the average stock price over a period) that functions as a kind of reference nominal value. You know in advance at what price you can convert the bond into shares.

The pitfalls of each method

The nominal value is so old that it almost has no trick. Its disadvantage is that it’s useless. End of story.

The book value especially fails with tech and small companies. Why? Because their most valuable assets (patents, talent, brand) are not well reflected on the balance sheet. Also, creative accounting exists: some companies fudge their numbers legally, so the book value might not be 100% accurate. Use it as a tool, not as an absolute truth.

The market value is a mirror of emotions. It can spike due to sector euphoria even if fundamentals don’t justify it. It can plummet because monetary policy has tightened. If a relevant sector or the economy deteriorates, the price can disconnect completely from financial reality. The market discounts future expectations, sometimes correctly, sometimes not.

Quick comparison

The conclusion you need

These three values do not compete; they complement each other. The nominal value is almost financial archaeology. The book value is your ally if you seek long-term investment in fundamental companies. The market value is your daily playground as a trader.

The key is not to cling to a single number. A good analysis combines the P/VC ratio (comparing book value with price), the reading of the market price in the context of supports and resistances, and always, always, the fundamental analysis behind. Because investing is not just ratios, although they help make better-informed decisions. True mastery lies in correctly interpreting each tool according to the moment and your strategy.