What Is Book Value?
Book value is the value of an asset as it appears on a company’s balance sheet, calculated by subtracting accumulated depreciation from the original purchase cost. It also refers to the net asset value of a company, calculated as total assets minus total liabilities.
Key Takeaways
- Definition: The value of an asset on the balance sheet.
- Formula: Original cost – accumulated depreciation.
- Company Value: Total assets – total liabilities.
Book Value of an Asset
- Original Cost: The purchase price of the asset.
- Accumulated Depreciation: The total depreciation expense recorded for the asset over time.
- Calculation: Book value = Original cost – accumulated depreciation.
Book Value of a Company
- Total Assets: Sum of all assets owned by the company.
- Total Liabilities: Sum of all debts and obligations.
- Calculation: Book value = Total assets – total liabilities.
Importance of Book Value
Book value provides insights into the value of a company’s assets and its overall financial health. It is used by investors to assess whether a stock is undervalued or overvalued based on the company’s net asset value.
