Book Value

Reviewed by Sujaini | Updated on Aug 26, 2020

Introduction

An asset's book value is equal to its carrying value on the balance sheet, and companies calculate it using the total net value of the asset against its accumulated depreciation.

Understanding Book Value

Book value can also be thought of as the net asset value of a company calculated as total assets minus intangible assets (patents, goodwill) and liabilities. For the initial outlay of an investment, book value may be net or gross of expenses such as trading costs, sales taxes, service charges, and so on.

As the accounting value of a firm, book value has two main uses:

  1. It serves as the total value of the company's assets that shareholders would theoretically receive if a company were liquidated.

  2. When compared to the company's market value, book value can indicate whether a stock is under or overpriced.