Glossary · UK
What is Book Value?
The value of a company or asset as recorded in its accounts, calculated as total assets minus total liabilities (or an asset's cost minus depreciation).
Full Definition
Book value, at a company level, is the value of shareholders' equity as shown on the balance sheet -- total assets minus total liabilities -- representing what would theoretically be left over for shareholders if all the company's assets were sold at their recorded accounting value and all liabilities were paid off. At an individual asset level, book value (or "net book value") is the original cost of the asset minus any accumulated depreciation or amortisation charged against it, reflecting how accounting rules gradually reduce the recorded value of assets like equipment, vehicles or buildings over their useful life. Book value can differ substantially from an asset's or company's market value: a company with valuable brands, customer relationships or growth prospects that are not fully captured on the balance sheet may trade well above its book value (a high price-to-book ratio), while a company in a declining or overcapitalised industry may trade below book value if the market doubts the assets could really be sold for their recorded worth. Investors sometimes compare share price to book value per share as a rough valuation check, particularly for asset-heavy businesses such as banks, insurers and property companies, though -- like the price-to-earnings ratio -- it is most useful as one of several measures rather than a standalone verdict on whether shares are cheap or expensive.