Book value is strictly an accounting and tax calculation. The term book value is a companys assets minus its liabilities and is sometimes referred to as stockholders equity, owners equity, shareholders equity, or simply equity. It is important to realize that the book value is not the same as the fair market value because of the accountants historical cost principle and matching principle. Here we learn how to calculate the book value ratio of a company using its formula. An assets original cost goes beyond the ticket price of the itemoriginal cost includes an assets purchase price and the cost of setting it up e. The first equation deducts accumulated depreciation from the total assets to get the. Book value per share bvps overview, formula, example.
In accounting, book value refers to the amounts contained in the companys general ledger accounts or books. Book value per share compares the amount of stockholders equity to the number of shares outstanding. Book value is the net value of assets within a company. Book value of assets is defined as the value of an asset in the books of records of a company or institution or an individual at any given instance. The book value per share bvps is calculated by taking the ratio of equity. Over here i explain what book value is and how to find it. Book value of assets definition, formula calculation. As the accounting value of a company, book value can have 2 core uses. The book values of assets are routinely compared to market values as part of various financial analyses. In the uk, book value is also known as net asset value. You can also determine the book value per share by dividing the. Mathematically, book value is calculated as the difference between a.
Book value of an asset is the value at which the asset is carried on a balance sheet and calculated by taking the cost of an asset minus the accumulated depreciation. It shows the current position of the asset base after liabilities are taken into account. Book value also carrying value is an accounting term used to account for the effect of depreciation on an asset. Book value formula how to calculate book value of a company. Book value is an accounting item and is subject to adjustments e. Nbv is calculated using the assets original cost how much it cost to acquire the asset. Book value, also called carrying value or net book value, is an assets original cost minus its depreciation. Thus, this measure is a possible indicator of the value of a companys stock. Net book value nbv refers to a companys assets or how the assets are. It shall serve as the total value of the assets of the firm or of the company that stockholders would theoretically receive if the firm or the company were to be liquidated. If the market value per share is lower than the book value per share, then the stock price may be undervalued.
It is important to realize that the book value is not the same as the fair market value because of the. Book value is an assets original cost, less any accumulated depreciation and impairment charges that have been subsequently incurred. This value is the total value of the asset less any expenses attached to it. There are various equations for calculating book value. By rearranging the original accounting equation, we get stockholders equity. Knowing the book value per share of the company youre analyzing is very important as it can show you whether or not the shares are. While small assets are simply held on the books at cost, larger assets like buildings and. The typical reduction categories include depreciation, impairment and interest costs related to the asset. The formula for calculating book value per share is the total common. Definition of book value in accounting, book value refers to the amounts contained in the companys.