What Is Book Value?
Book value is a company’s net asset value shown on its balance sheet, calculated as total assets minus total liabilities. It reflects an accounting-based estimate of the company’s net worth.
Definition
Book value is the value of a company’s assets as recorded on its balance sheet, minus its total liabilities. It represents the accounting net worth of the business based on recorded asset values and obligations.
Book value can differ from market value, which reflects the price investors are willing to pay for the company’s shares in the stock market.
How It Works
Book value is derived from balance sheet figures and is based on historical cost accounting. Asset values may be reduced over time through depreciation, which can affect the book value reported on financial statements.
A related measure, book value per share (BVPS), is calculated by dividing common shareholders’ equity (total equity minus preferred stock) by the number of common shares outstanding.
Why the Term Matters
Book value is used to describe a company’s accounting-based financial position and is often referenced when comparing companies or evaluating valuation relative to market price.
It also provides context for valuation measures such as the price-to-book (P/B) ratio and for understanding the limits of historical-cost accounting versus mark-to-market pricing.
Related Concepts
- Market value
- Shareholders’ equity
- Book value per share (BVPS)
- Price-to-book (P/B) ratio
- Depreciation
- Mark-to-market valuation
FAQs
What is book value?
Book value is a company’s total assets minus total liabilities as recorded on its balance sheet.
How is book value different from market value?
Book value reflects accounting values from financial statements, while market value reflects what investors are willing to pay for the company’s shares.
What is book value per share (BVPS)?
Book value per share is the company’s common shareholders’ equity divided by the number of common shares outstanding.
Why can book value be different from an asset’s current market price?
Book value is often based on historical costs and depreciation rather than current market prices.
What is the price-to-book (P/B) ratio used for?
The price-to-book ratio compares a company’s market value to its book value and is often used to compare similar companies using consistent accounting methods.
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