What It Is:
Book value = Cost of the asset - Accumulated depreciation
How It Works/Example:
$100,000 - $10,000 (year 1) - $10,000 (year 2 ) - $10,000 (year 3 ) = $70,000
Why It Matters:
Book value is one of the most popular financial measures, particularly when it comes to valuing companies. When a company's book value is below the actual market value of the company, the company may be . Likewise, if the company's book value is above the actual market value, the company might be undervalued.
The disparity highlights one very important aspect of book value: it is usually not what an(or company) might be really worth today. In other words, book value is not the same as market value.