What is the book value?

Book value is another term used for Stockholders' Equity or Owners' Equity.

Book Value = Stockholders' Equity = Total Assets - Total Liabilities

How do you find book value?

The easiest way to find book value when reading a company's annual report is to look at their Balance Sheet, which is sometimes referred to as the Consolidated Statement of Financial Position. The bottom line will show Total Liabilities and Stockholders' Equity, the line above that should show Total Stockholders' Equity. As an example, take a look at page 61 (page 63 in the PDF) of IBM's 2008 Annual Report.

Is book value objective?

Book value is directly impacted by the assets and liabilities that a company reports on its balance sheet, and it is impacted by the profits/losses that flow through from the income statement to the retained earnings section of stockholders' equity. Because of this, the book value is as objective as the company's accounting processes. All publicly traded companies in the U.S., are required to follow the U.S. Generally Accepted Accounting Principles (GAAP).

A company blatantly violating GAAP will not have an objective book value. However, given the variations allowed within U.S. GAAP, book value may not be objective for your purposes even if the company complies with GAAP. For instance, GAAP values many assets on a historic cost basis, so if a company has assets that have appreciated over time, the book value will under report market value of those assets (you might have found a bargain). Conversely, if a company makes an acquisition that results in a significant amount of goodwill on their books, then that goodwill could cause the book value of the company to be over inflated and not objective for your purposes.

I'm not sure who to attribute credit to for this quote, but always read the footnotes of financial statements since that's where they bury the bodies.

The book value for an company is its assets minus its liabilities. Divide the book value by the number of outstanding shares and that'll give you the company's book value per share. Dividing the current share price by the book value per share will give you the price-to-book value ratio (P/B). If that ratio is above 1.0, the stock is trading above its book value. In that case, the company could be considered over valued. If the ratio is below 1.0 then the company is potentially undervalued.

It's a crude way to find undervalued companies and usually only makes sense in businesses with lots of assets but it could help in filtering out companies to take a closer look at.