How is book value defined in relation to stocks?

Book value in relation to stocks is defined as the net worth of the company divided by the number of outstanding shares. This calculation provides a measure of what each share of stock represents in terms of the company's net assets. The net worth, or equity, is determined by subtracting total liabilities from total assets, reflecting the company's fundamental value from an accounting standpoint.

This approach allows investors to ascertain the intrinsic value of a company's shares, making it a crucial metric for evaluating whether a stock is undervalued or overvalued in the market. By dividing the net worth by the number of outstanding shares, you obtain the book value per share, which can be compared to the market price to assess investment potential.

The other options do not accurately describe book value. For instance, multiplying the market price by outstanding shares gives the market capitalization, not the book value. Stating the total assets of the company does not factor in liabilities, which are essential for determining net worth. Lastly, the sum of all issued shares does not relate to the net worth or the calculated value of equity. Hence, the correct understanding of book value revolves around the net worth divided by outstanding shares, facilitating a sound investment analysis.