Book Value

The book value of an asset is the amount a company pays to carry it on its balance sheet, after deducting its accumulated depreciation. Consequently, book value can also be thought of as the net asset value of a company, calculated as its total assets less intangible assets (patents, goodwill) and liabilities. Depending on the initial investment, book value may be either net or gross of expenses such as trading costs, sales taxes, service charges, and so on.

A company's book value per share is equal to the total common stockholders' equity less the preferred stock, divided by the number of common shares. "Net book value" may also be used to describe this value.

Book value is equal to the company's assets subtracted from all claims senior to common equity (such as liabilities). As an accounting practice, book value is recorded in books at the original historical cost of an asset.

Although the book value of an asset may not change over time by accounting measurements, the book value of a company can grow as earnings are accumulated. By comparing a company's book value to the market value of its shares, it is possible to determine if shares are priced fairly by comparing the book value with the market value.