Recently, many beginners have asked me how to determine whether a stock is expensive or cheap. Actually, besides looking at the stock price itself, it’s more important to understand the concept of net asset value calculation.

Book value per share (BVPS) essentially means the company's book assets divided equally among each share. Imagine a company liquidates, deducts all debts, and the remaining assets are split among shareholders—how much money can each share roughly get? That’s the net value. The calculation is quite simple: divide shareholders’ equity by the number of outstanding shares, or use (total assets - total liabilities) ÷ outstanding shares.

I’ve found that many people easily confuse net value calculation with stock price. In fact, net value reflects the accumulated book assets from the past, while stock price reflects the market’s expectations for the company's future. These two often diverge. For example, a tech company might have a low net value, but because it has strong technology and brand power, its stock price can be very high. Conversely, a traditional manufacturing company might have a high net value, but if the industry is in decline, its stock price can still fall.

Therefore, the net value calculation itself has limitations. A higher net value doesn’t necessarily mean a better company; it’s crucial to consider what industry the company belongs to. For capital-intensive industries like finance, shipping, and steel, net value calculation is quite meaningful because their value mainly comes from tangible assets. But for software, tech, and content-based companies, just looking at net value is too one-sided, since their core value comes from intangible assets and future growth potential.

When I choose stocks, I usually look at net value calculation combined with the Price-to-Book ratio (PBR). PBR is the stock price divided by the net asset value per share; a lower number indicates relative cheapness. But this is only the first step. You also need to consider industry outlook, profit trends, and competitive advantages. Don’t buy just because PBR is low; it’s easy to fall into traps.

For example, JPMorgan’s PBR is about 1.94, Ford is 1.19, and General Electric is even lower at 0.70. They all seem cheap, but the underlying logic is completely different. A low PBR for financial stocks might reflect uncertain economic prospects, while a low PBR for traditional automakers could be due to industry transformation. So, net value calculation is just a tool, not a decision-making endpoint.

Finally, it’s important not to confuse net value calculation with earnings per share (EPS). Net value looks at the asset side, while EPS focuses on profitability. A company might have a high net value but poor earnings, indicating assets are not being used effectively; or it might have a low net value but strong EPS, showing it’s a low-capital, high-efficiency model. Both indicators should be considered together to see the full picture.

In simple terms, net value calculation is the starting point for understanding stock value, but it’s not the end. True investment decisions should incorporate net value, PBR, EPS, ROE, and industry characteristics—all together—to get closer to the company’s real worth.