Two groups of people can decide a stock's price: The accountants and the investors. Now, at the end of the day, a stock is obv an investor will pay for it, but the accountants can tell you down to the penny the exact amount of assets that accompany each share you buy. This can prove to be very useful -- and valuable -- information.
A company's balance sheet is a snapshot into its financial standing -- everything it owns and owes, all laid out for any investor to examine. If assets exceed liabilities, the difference is referred to as 'shareholder equity.' Just like the equity you have in your home, shareholder equity is the part of the company that the stockholders actually own. This number, when divided by the number of shares the company has outstanding, is referred to as the per-share 'book value' of the stock. It is one of the crucial measures for value investors.
Most companies trade at a multiple to their per-share book value. A room full of desks has a value, but a room full of desks where people carry out business activities has another. That's because in addition to the value of its hard assets, the company has an intangible value that is derived from its ability to generate earnings. The chart shows the average price-to-book ratio of the S&P 500 from 1995 through the end of 2008.
