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EmailWhat It Is:
Book value, usually located on a company's balance sheet as "stockholder equity," represents the total amount a company would be worth if it paid back all liabilities, went out of business, and liquidated its assets. In effect, it is the net worth of a company's securities based on the value of its tangible assets minus liabilities.
Book value can also represent the current worth of a particular asset on the company's balance sheet, taking 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 any 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 inv
estors 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.
A progressive tax is one in which the tax rate increases as the amount being taxed increases. Most western countries use a progressive tax in one way or another.
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