I've noticed for some time that many investors confuse three fundamental but completely different concepts: nominal value, book value, and market value. The truth is, understanding the difference between these three completely changes the way you analyze stocks.

Let's start with nominal value. This is basically the starting point, the theoretical price at which shares are issued when a company goes public. It is calculated by dividing the share capital by the total number of shares. For example, if a company has a capital of 6.5 million and issues 500,000 shares, the nominal value would be 13 euros per share. It sounds important, but here’s where it gets interesting: in equities, almost no one pays attention to it after the first day. Nominal value has its weight in bonds and fixed income, where you know you will recover that amount at maturity. But in stocks, it’s more of a historical data point.

Now, book value is where things get interesting for those of us doing value investing. It is calculated by taking the company's assets, subtracting liabilities, and dividing the result by the number of shares issued. This gives you an idea of what is actually on the company's books per share you own. If a company has assets of 7.5 million, liabilities of 2.4 million, and 580,000 shares issued, the book value would be 8.77 euros per share. The valuable part here is that you can compare this number with the market price to detect if a stock is cheap or expensive in terms of what the company is truly worth on its books.

But there’s an important problem with book value: it tends to fail quite a bit when applied to tech companies or small businesses. Also, creative accounting exists, so you can’t always trust 100% what you see in the financial statements.

And then there’s market value, which is what you see on your screen every day. It’s the price at which the stock is actually bought and sold, resulting from the intersection of buy and sell orders. If a company's market capitalization is 6.94 billion and it has 3.02 million shares, the market value is 2.30 euros per share. This is the number that matters when you trade, but here’s the trap: market price doesn’t tell you if it’s expensive or cheap. It only tells you what it is.

The key difference is that book value shows what it should be, while market value shows what it actually is. And what it actually is is influenced by thousands of external factors: interest rate announcements, sector news, economic expectations, even irrational market euphoria. That’s why market value can stray far from a company’s financial reality.

In practice, if you’re a value investor, you would use book value to identify potentially undervalued companies. Then you compare the market price with the book value using the Price/Book ratio. If this ratio is low, it means you’re paying less for each euro of book value. But beware, it’s not enough to look at just one ratio. You need to see the full context: the business model, the quality of the balance sheet, sector prospects.

Regarding limitations, each method has its own. Nominal value is too basic and quickly loses relevance. Book value is affected by accounting tricks and doesn’t work well with certain types of companies. And market value, well, it’s unpredictable because it reflects sentiment and expectations more than reality.

The conclusion I’ve drawn after years of trading is that you need all three numbers, but for different purposes. Nominal value gives you historical context. Book value helps you identify investment opportunities. And market value is your daily operational tool. The important thing is not to obsess over just one and ignore the others. Serious investing requires looking at the full picture.