Book Value

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Description of Book Value. Explanation.




Definition Book Value. Description.

1. Book Value of a firm is a company's common stock equity, as it appears on a balanced sheet.

It represents the net worth of a firm to its shareholders ("Shareholders Equity"), based on the difference between its total assets and its liabilities.

Calculating Book Value. Take the Total Assets of a firm and subtract the current liabilities, long-term liabilities and Preferred Stock. If you divide the book value by the number of shares issued, you get the Book Value per Share.

Note that normally the book value of a firm is substantially lower than its Market Value. The bigger the difference between market value and Book Value, the more the company is regarded by investors.

Book Value can help to find underpriced stocks and is also an indication of the ultimate Liquidation Value of a company.

2. The Book Value of an Asset on a balance sheet equals the cost of the asset minus any accumulated Depreciation. For example, a machine is initially put on the books at its cost when purchased. Its value will be reduced each year as depreciation is being charged.

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Compare with: Adjusted Book Value  |  Tangible Book Value  |  Liquidation Value  |  Market Value  |  Market Value Added  |  P/E Ratio  |  PEG Ratio  |  EBIT  |  EBITDA  |  Return on Equity  |  Fair Value

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