Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail
Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail

Book Value

What it is:

Book value refers to the total amount a company would be worth if it liquidated its assets and paid back all its liabilities. Book value can also represent the value of a particular asset on the company's balance sheet after taking accumulated depreciation into account.

How it works (Example):

Book value is calculated by taking a company's physical assets (including land, buildings, computers, etc.) and subtracting out intangible assets (such as patents)and liabilities -- including preferred stock, debt, and accounts payable. The value left after this calculation represents what the company is intrinsically worth.

Thus, book value is calculated:

Book value = total assets - intangible assets - liabilities 

Why it Matters:

Since book value represents the intrinsic net worth of a company, it is a helpful tool for invThe definition of book value on InvestingAnswersestors wanting to determine if a company is underpriced or overpriced, which could indicate a potential time to buy or sell. For instance, value investors search for companies trading for prices at or below book value (indicating a price-to-book ratio of less than 1.0), which implies the shares are selling for less than the company's actual worth.

Related Terms View All
  • Making Home Affordable
    The Making Home Affordable program is actually a collection of several programs: Home...
  • Y2K
    In the business world, Y2K (also called the millennium bug) was a problem that plagued...
  • Spot Secondary
    A spot secondary is generally a transaction with just one type of holder -- usually...
  • Married Filing Jointly
    Let's say John and Jane Doe are married. They sit down to file their tax returns for the...
  • Government Accounting Office (GAO)
    The head of the GAO is the Comptroller General of the United States. Congress creates a...