Book Value

Financial Dictionary -> Investing -> Book Value

Book value, often called carrying value is an accounting term that refers to the value of an asset, going by the data on its corresponding balance sheet. The value of an asset is based on its original purchase costs, minus depreciation, amortization and other similar devaluing costs.

Book value of a company may also refer to its total net asset value. It is calculated by taking the total value of the company's assets minus its intangible assets and liabilities.

A company's asset Book value can be an annual or quarterly accounting record. When an asset is first purchased its value is the purchase cost, but over time its value and usefulness decreases and is calculated by depreciation. Each quarter this loss in value is factored in to the assets recorded book value. The depreciation, amortization and depletion itself can be calculated on a monthly basis.

Investors and other stakeholders in a company will be interested in the book value of the assets because if worst comes to the worst and the company goes under due to debt problems, during the liquidation process it is the assets that are sold off to cover debts and pay shareholders what is owed to them. So if a company has a lot of valuable assets it gives an investor that added piece of security, as they are more likely to get their money back in the case of a financial disaster.

When looking at a company's balance sheet, book value is one of the factors that go in to determining how financially stable and successful a business is. For example if a company is making little profit and has a low book value, the overall value of the business would be low, whereas a company that makes millions in profit and has loads of valuable assets would be a very valuable business.