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<title>Book value</title>

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<span id="openzim-page-title" class="mw-page-title-main"><span class="mw-page-title-main">Book value</span></span>

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In accounting, <b>book value</b> (or <b>carrying value</b>) is the value of an <a href="Asset" title="Asset">asset</a> according to its <a href="Balance_sheet" title="Balance sheet">balance sheet</a> account balance.<sup id="cite_ref-1" class="reference"><a href="#cite_note-1"><span class="cite-bracket">[</span>1<span class="cite-bracket">]</span></a></sup> For assets, the value is based on the original cost of the asset less any <a href="Depreciation" title="Depreciation">depreciation</a>, <a href="Amortization_(accounting)" title="Amortization (accounting)">amortization</a> or <a href="Impairment_cost" class="mw-redirect" title="Impairment cost">impairment costs</a> made against the asset. Traditionally, a company's book value is its <span class="cleanup-needed-content" style="padding-left:0.1em; padding-right:0.1em; color:var(--color-subtle, #54595d); border:1px solid var(--border-color-subtle, #c8ccd1);">total assets</span> minus <a href="Intangible_asset" title="Intangible asset">intangible assets</a> and liabilities.<sup id="cite_ref-2" class="reference"><a href="#cite_note-2"><span class="cite-bracket">[</span>2<span class="cite-bracket">]</span></a></sup> However, in practice, depending on the source of the calculation, book value may variably include <a href="Goodwill_(accounting)" title="Goodwill (accounting)">goodwill</a>, <a href="Intangible_asset" title="Intangible asset">intangible assets</a>, or both.<sup id="cite_ref-Security_Analysis_3-0" class="reference"><a href="#cite_note-Security_Analysis-3"><span class="cite-bracket">[</span>3<span class="cite-bracket">]</span></a></sup> The value inherent in its workforce, part of the <a href="Intellectual_capital" title="Intellectual capital">intellectual capital</a> of a company, is always ignored. When intangible assets and goodwill are explicitly excluded, the metric is often specified to be <i>tangible book value</i>.

</p><p>In the United Kingdom, the term <a href="Net_asset_value" title="Net asset value">net asset value</a> may refer to the book value of a company.

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<div class="mw-heading mw-heading2"><h2 id="Asset_book_value">Asset book value</h2></div>

<p>An asset's initial book value is its actual cash value or its acquisition cost. Cash assets are recorded or "booked" at actual cash value. Assets such as buildings, land and equipment are valued based on their acquisition cost, which includes the actual cash cost of the asset plus certain costs tied to the purchase of the asset, such as broker fees. Not all purchased items are recorded as assets; incidental supplies are recorded as expenses. Some assets might be recorded as current expenses for tax purposes. An example of this is assets purchased and expensed under <a href="Section_179" class="mw-redirect" title="Section 179">Section 179</a> of the U.S. tax code.

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<div class="mw-heading mw-heading3"><h3 id="Depreciable,_amortizable_and_depletable_assets">Depreciable, amortizable and depletable assets</h3></div>

<p>Monthly or annual <a href="Depreciation" title="Depreciation">depreciation</a>, <a href="Amortization_(accounting)" title="Amortization (accounting)">amortization</a> and <a href="Depletion_(accounting)" title="Depletion (accounting)">depletion</a> are used to reduce the book value of assets over time as they are "consumed" or used up in the process of obtaining revenue.<sup id="cite_ref-4" class="reference"><a href="#cite_note-4"><span class="cite-bracket">[</span>4<span class="cite-bracket">]</span></a></sup> These non-cash expenses are recorded in the accounting books <i>after</i> a <a href="Trial_balance" title="Trial balance">trial balance</a> is calculated to ensure that cash transactions have been recorded accurately. Depreciation is used to record the declining value of buildings and equipment over time. Land is not depreciated. Amortization is used to record the declining value of intangible assets such as patents. Depletion is used to record the consumption of natural resources.<sup id="cite_ref-5" class="reference"><a href="#cite_note-5"><span class="cite-bracket">[</span>5<span class="cite-bracket">]</span></a></sup>

</p><p>Depreciation, amortization and depletion are recorded as expenses against a <a href="Contra_account" class="mw-redirect" title="Contra account">contra account</a>. Contra accounts are used in bookkeeping to record asset and liability valuation changes. <i>Accumulated depreciation</i> is a contra-asset account used to record asset depreciation.<sup id="cite_ref-6" class="reference"><a href="#cite_note-6"><span class="cite-bracket">[</span>6<span class="cite-bracket">]</span></a></sup>

</p><p>Sample <a href="General_journal" title="General journal">general journal</a> entry for depreciation<sup id="cite_ref-7" class="reference"><a href="#cite_note-7"><span class="cite-bracket">[</span>7<span class="cite-bracket">]</span></a></sup>

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<ul><li>Depreciation expenses: building... debit = $150, under expenses in retained earnings</li>

<li>Accumulated depreciation: building... credit = $150, under assets</li></ul>

<p>The balance sheet valuation for an asset is the asset's cost basis minus accumulated depreciation.<sup id="cite_ref-8" class="reference"><a href="#cite_note-8"><span class="cite-bracket">[</span>8<span class="cite-bracket">]</span></a></sup> Similar bookkeeping transactions are used to record amortization and depletion.

</p><p>"Discount on notes payable" is a contra-liability account which decreases the balance sheet valuation of the liability.<sup id="cite_ref-9" class="reference"><a href="#cite_note-9"><span class="cite-bracket">[</span>9<span class="cite-bracket">]</span></a></sup>

</p><p>When a company sells (issues) <a href="Bond_(finance)" title="Bond (finance)">bonds</a>, this debt is a <a href="Long-term_liability" class="mw-redirect" title="Long-term liability">long-term liability</a> on the company's balance sheet, recorded in the account Bonds Payable based on the contract amount. After the bonds are sold, the book value of Bonds Payable is increased or decreased to reflect the actual amount received in payment for the bonds. If the bonds sell for less than <a href="Face_value" title="Face value">face value</a>, the contra account Discount on Bonds Payable is debited for the difference between the amount of cash received and the face value of the bonds.<sup id="cite_ref-10" class="reference"><a href="#cite_note-10"><span class="cite-bracket">[</span>10<span class="cite-bracket">]</span></a></sup>

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<div class="mw-heading mw-heading2"><h2 id="Net_asset_value">Net asset value</h2></div>

<p>In the United Kingdom, the term <a href="Net_asset_value" title="Net asset value">net asset value</a> may refer to book value.

</p><p>A <a href="Mutual_fund" title="Mutual fund">mutual fund</a> is an entity which primarily owns <i>financial assets</i> or <a href="Capital_asset" title="Capital asset">capital assets</a> such as bonds, stocks and commercial paper. The <a href="Net_asset_value" title="Net asset value">net asset value</a> of a mutual fund is the market value of assets owned by the fund minus the fund's liabilities.<sup id="cite_ref-11" class="reference"><a href="#cite_note-11"><span class="cite-bracket">[</span>11<span class="cite-bracket">]</span></a></sup> This is similar to shareholders' equity, except the asset valuation is market-based rather than based on acquisition cost. In financial news reporting, the reported net asset value of a mutual fund is the net asset value of a single share in the fund. In the mutual fund's accounting records, the financial assets are recorded at acquisition cost. When assets are sold, the fund records a capital gain or capital loss.

</p><p>Financial assets include stock shares and bonds owned by an individual or company.<sup id="cite_ref-12" class="reference"><a href="#cite_note-12"><span class="cite-bracket">[</span>12<span class="cite-bracket">]</span></a></sup> These may be reported on the individual or company balance sheet at cost or at market value.

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<div class="mw-heading mw-heading2"><h2 id="Corporate_book_value">Corporate book value</h2></div>

<p>A company or corporation's book value, as an asset held by a separate economic entity, is the company or corporation's <a href="Shareholders'_equity" class="mw-redirect" title="Shareholders' equity">shareholders' equity</a>, the acquisition cost of the shares, or the market value of the shares owned by the separate economic entity.

</p><p>A corporation's book value is used in fundamental financial analysis to help determine whether the market value of corporate shares is above or below the book value of corporate shares. Neither market value nor book value is an unbiased estimate of a corporation's value. The corporation's bookkeeping or accounting records do not generally reflect the market value of assets and liabilities, and the market or trade value of the corporation's stock is subject to variations.

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<div class="mw-heading mw-heading2"><h2 id="Tangible_common_equity">Tangible common equity</h2></div>

<p>A variation of book value, <a href="Tangible_common_equity" title="Tangible common equity">tangible common equity</a>, has recently come into use by the U.S. federal government in the valuation of troubled banks.<sup id="cite_ref-WSJ-2/23/09_13-0" class="reference"><a href="#cite_note-WSJ-2/23/09-13"><span class="cite-bracket">[</span>13<span class="cite-bracket">]</span></a></sup><sup id="cite_ref-NYT-2/24/09_14-0" class="reference"><a href="#cite_note-NYT-2/24/09-14"><span class="cite-bracket">[</span>14<span class="cite-bracket">]</span></a></sup> Tangible common equity is calculated as total book value minus <a href="Intangible_asset" title="Intangible asset">intangible assets</a>, <a href="Goodwill_(accounting)" title="Goodwill (accounting)">goodwill</a>, and <a href="Preferred_stock" title="Preferred stock">preferred equity</a>, and can thus be considered the most conservative valuation of a company and the best approximation of its value should it be forced to liquidate.<sup id="cite_ref-wikinvestTCE_15-0" class="reference"><a href="#cite_note-wikinvestTCE-15"><span class="cite-bracket">[</span>15<span class="cite-bracket">]</span></a></sup>

</p><p>Since tangible common equity subtracts preferred equity from the tangible book value, it does a better job estimating what the value of the company is to holders of specifically <i>common</i> stock compared to standard calculations of book value.

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<div class="mw-heading mw-heading2"><h2 id="Stock_pricing_book_value">Stock pricing book value</h2></div>

<p>To clearly distinguish the <a href="Market_value" title="Market value">market price</a> of shares from the core <a href="Ownership_equity" class="mw-redirect" title="Ownership equity">ownership equity</a> or <a href="Shareholders'_equity" class="mw-redirect" title="Shareholders' equity">shareholders' equity</a>, the term <i>book value</i> is often used since it focuses on the values that have been added and subtracted in the accounting books of a business (assets – liabilities). The term is also used to distinguish between the <a href="Market_value" title="Market value">market price</a> of any asset and its accounting value which depends more on <a href="Historical_cost" title="Historical cost">historical cost</a> and <a href="Depreciation" title="Depreciation">depreciation</a>. It may be used interchangeably with carrying value. While it can be used to refer to the business' total <a href="Ownership_equity" class="mw-redirect" title="Ownership equity">equity</a>, it is most often used:

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<ul><li>As a <i>per share value</i>: The balance sheet equity value is divided by the number of shares outstanding at the date of the balance sheet (not the average o/s in the period).</li>

<li>As a <i>diluted per share value</i>: The equity is bumped up by the exercise price of the options, warrants or preferred shares. Then it is divided by the number of shares that has been increased by those added.</li></ul>

<div class="mw-heading mw-heading3"><h3 id="Uses_of_books">Uses of books</h3></div>

<ol><li>Book value is used in the <a href="Financial_ratio" title="Financial ratio">financial ratio</a> <a href="P/B_ratio" title="P/B ratio">price/book</a>. It is a valuation metric that sets the floor for stock prices under a worst-case scenario. When a business is liquidated, the book value is what may be left over for the owners after all the debts are paid. Paying only a price/book = 1 means the investor will get all his investment back, assuming assets can be resold at their book value. Shares of capital intensive industries trade at lower price/book ratios because they generate lower earnings per dollar of assets. Business depending on <a href="Human_capital" title="Human capital">human capital</a> will generate higher earnings per dollar of assets, so will trade at higher price/book ratios.</li>

<li>Book value per share can be used to generate a measure of comprehensive earnings, when the opening and closing values are reconciled. BookValuePerShare, beginning of year – Dividends + ShareIssuePremium + Comprehensive EPS = BookValuePerShare, end of year.<sup id="cite_ref-16" class="reference"><a href="#cite_note-16"><span class="cite-bracket">[</span>16<span class="cite-bracket">]</span></a></sup></li></ol>

<div class="mw-heading mw-heading3"><h3 id="Changes_are_caused_by">Changes are caused by</h3></div>

<ol><li>The sale of shares/units by the business increases the total book value. Book/sh will increase if the additional shares are issued at a price higher than the pre-existing book/sh.</li>

<li>The purchase of its own shares by the business will decrease total book value. Book/shares will decrease if more is paid for them than was received when originally issued (pre-existing book/sh).</li>

<li>Dividends paid out will decrease book value and book/sh.</li>

<li>Comprehensive earnings/losses will increase/decrease book value and book/sh. Comprehensive earnings, in this case, includes net income from the Income Statement, foreign exchange translation changes to Balance Sheet items, accounting changes applied retroactively, and the <a href="Opportunity_cost" title="Opportunity cost">opportunity cost</a> of options exercised.</li></ol>

<div class="mw-heading mw-heading3"><h3 id="New_share_issues_and_dilution">New share issues and dilution</h3></div>

<p>The issue of more shares does not necessarily decrease the value of the current owner. While it is correct that when the number of shares is doubled the EPS will be cut in half, it is too simple to be the full story. It all depends on how much was paid for the new shares and what return the new capital earns once invested. See the discussion at <a href="Stock_dilution" title="Stock dilution">stock dilution</a>.

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<div class="mw-heading mw-heading3"><h3 id="Net_book_value_of_long_term_assets">Net book value of long term assets</h3></div>

<p>Book value is often used interchangeably with <i>net book value</i> or <i>carrying value</i>, which is the original acquisition cost less accumulated <a href="Depreciation" title="Depreciation">depreciation</a>, <a href="Depletion_(accounting)" title="Depletion (accounting)">depletion</a> or <a href="Amortization_(accounting)" title="Amortization (accounting)">amortization</a>. Book value is the term which means the value of the firm as per the books of the company. It is the value at which the assets are valued in the balance sheet of the company as on the given date.

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<ul><li><a href="Capital_formation" title="Capital formation">Capital formation</a></li>

<li><a href="Fixed_capital" title="Fixed capital">Fixed capital</a></li>

<li><a href="List_of_accounting_topics" class="mw-redirect" title="List of accounting topics">List of accounting topics</a></li>

<li><a href="Market_value" title="Market value">Market value</a></li>

<li><a href="Shareholders'_equity" class="mw-redirect" title="Shareholders' equity">Shareholders' equity</a></li>

<li><a href="Stock_dilution" title="Stock dilution">Stock dilution</a></li>

<li><a href="Tangible_common_equity" title="Tangible common equity">Tangible common equity</a></li></ul>

<div class="mw-heading mw-heading2"><h2 id="References">References</h2></div>

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</style><cite class="citation web cs1"><a rel="nofollow" class="external text" href="https://www.nysscpa.org/professional-resources/accounting-terminology-guide">"Accounting Terminology Guide - <i>Book Value</i>"</a>. New York State Society of CPAs. <q>Amount that an asset or liability shows on the balance sheet of a company. Also known as carrying value.</q></cite></span>

</li>

<li id="cite_note-2"><span class="mw-cite-backlink"><b><a href="#cite_ref-2">^</a></b></span> <span class="reference-text">Hermanson, Roger H., James Don Edwards, R. F. Salmonson, (1987) <i>Accounting Principles</i> Volume II, Dow Jones-Irwin, p. 694. <a href="ISBN_(identifier)" class="mw-redirect" title="ISBN (identifier)">ISBN</a> <bdi>1-55623-035-4</bdi></span>

</li>

<li id="cite_note-Security_Analysis-3"><span class="mw-cite-backlink"><b><a href="#cite_ref-Security_Analysis_3-0">^</a></b></span> <span class="reference-text">Graham and Dodd's <i>Security Analysis</i>, Fifth Edition, pp 318 – 319</span>

</li>

<li id="cite_note-4"><span class="mw-cite-backlink"><b><a href="#cite_ref-4">^</a></b></span> <span class="reference-text">Meigs and Meigs, <i>Financial Accounting</i> 4th ed. p. 90.</span>

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<li id="cite_note-5"><span class="mw-cite-backlink"><b><a href="#cite_ref-5">^</a></b></span> <span class="reference-text">Wolk, Harry I., James L. Dodd and Michael G. Tearney (2004). <i>Accounting Theory: Conceptual Issues in a Political and Economic Environment</i>, 6th ed. South-Western. pp. 330–331. <a href="ISBN_(identifier)" class="mw-redirect" title="ISBN (identifier)">ISBN</a> <bdi>0-324-18623-1</bdi>.</span>

</li>

<li id="cite_note-6"><span class="mw-cite-backlink"><b><a href="#cite_ref-6">^</a></b></span> <span class="reference-text">Meigs, p.91</span>

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<li id="cite_note-7"><span class="mw-cite-backlink"><b><a href="#cite_ref-7">^</a></b></span> <span class="reference-text">Meigs, p.90</span>

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<li id="cite_note-8"><span class="mw-cite-backlink"><b><a href="#cite_ref-8">^</a></b></span> <span class="reference-text">Meigs, p.105</span>

</li>

<li id="cite_note-9"><span class="mw-cite-backlink"><b><a href="#cite_ref-9">^</a></b></span> <span class="reference-text">Meigs, p. 313</span>

</li>

<li id="cite_note-10"><span class="mw-cite-backlink"><b><a href="#cite_ref-10">^</a></b></span> <span class="reference-text">Hermanson, Roger H., James Don Edwards, R. F. Salmonson, (1987) <i>Accounting Principles</i> Volume II, Dow Jones-Irwin, p. 657. <a href="ISBN_(identifier)" class="mw-redirect" title="ISBN (identifier)">ISBN</a> <bdi>1-55623-035-4</bdi></span>

</li>

<li id="cite_note-11"><span class="mw-cite-backlink"><b><a href="#cite_ref-11">^</a></b></span> <span class="reference-text"><cite class="citation web cs1"><a rel="nofollow" class="external text" href="https://www.sec.gov/answers/nav.htm">"SEC.gov – Net Asset Value"</a>. <i>sec.gov</i><span class="reference-accessdate">. Retrieved <span class="nowrap">9 April</span> 2018</span>.</cite></span>

</li>

<li id="cite_note-12"><span class="mw-cite-backlink"><b><a href="#cite_ref-12">^</a></b></span> <span class="reference-text">Groppelli, Angelico A. (2000) <i>Finance</i>, 4th ed., p.25.</span>

</li>

<li id="cite_note-WSJ-2/23/09-13"><span class="mw-cite-backlink"><b><a href="#cite_ref-WSJ-2/23/09_13-0">^</a></b></span> <span class="reference-text">"US Eyes Large Stake in Citi", <i>The Wall Street Journal</i>, 23 February 2009,</span>

</li>

<li id="cite_note-NYT-2/24/09-14"><span class="mw-cite-backlink"><b><a href="#cite_ref-NYT-2/24/09_14-0">^</a></b></span> <span class="reference-text">"<i>Stress Test for Banks Exposes Rift on Wall St.". </i>The New York Times<i>, 24 February 2009,</i></span>

</li>

<li id="cite_note-wikinvestTCE-15"><span class="mw-cite-backlink"><b><a href="#cite_ref-wikinvestTCE_15-0">^</a></b></span> <span class="reference-text"><a rel="nofollow" class="external text" href="https://www.wikinvest.com/Tangible_Common_Equity_%28TCE%29">Tangible Common Equity via Wikinvest</a></span>

</li>

<li id="cite_note-16"><span class="mw-cite-backlink"><b><a href="#cite_ref-16">^</a></b></span> <span class="reference-text"><a rel="nofollow" class="external free" href="http://www.retailinvestor.org/earnings.html">http://www.retailinvestor.org/earnings.html</a> <a rel="nofollow" class="external text" href="https://web.archive.org/web/20190402214139/http://www.retailinvestor.org/earnings.html">Archived</a> 2 April 2019 at the <a href="Wayback_Machine" title="Wayback Machine">Wayback Machine</a> Use Book Value To Calculate Comprehensive EPS</span>

</li>

</ol></div></div>

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</style><div id="Accounting33" style="font-size:114%;margin:0 4em"><a href="Accounting" title="Accounting">Accounting</a></div></th></tr><tr><th scope="row" class="navbox-group" style="width:1%">Type</th><td class="navbox-list-with-group navbox-list navbox-odd" style="width:100%;padding:0"><div style="padding:0 0.25em">

<ul><li><a href="Financial_accounting" title="Financial accounting">Financial accounting</a></li>

<li><a href="Cost_accounting" title="Cost accounting">Cost accounting</a></li>

<li><a href="Management_accounting" title="Management accounting">Management accounting</a></li>

<li><a href="Forensic_accounting" title="Forensic accounting">Forensic accounting</a></li>

<li><a href="Fund_accounting" title="Fund accounting">Fund accounting</a></li>

<li><a href="Governmental_accounting" title="Governmental accounting">Governmental accounting</a></li>

<li><a href="Social_accounting" title="Social accounting">Social accounting</a></li>

<li><a href="Tax_accounting" class="mw-redirect" title="Tax accounting">Tax accounting</a></li></ul>

</div></td></tr><tr><th scope="row" class="navbox-group" style="width:1%">Statements</th><td class="navbox-list-with-group navbox-list navbox-even" style="width:100%;padding:0"><div style="padding:0 0.25em">

<ul><li><a href="Income_statement" title="Income statement">Income statement</a></li>

<li><a href="Balance_sheet" title="Balance sheet">Balance sheet</a></li>

<li><a href="Statement_of_changes_in_equity" title="Statement of changes in equity">Statement of changes in equity</a></li>

<li><a href="Cash_flow_statement" title="Cash flow statement">Cash flow statement</a></li></ul>

</div></td></tr><tr><th scope="row" class="navbox-group" style="width:1%">Terms</th><td class="navbox-list-with-group navbox-list navbox-odd" style="width:100%;padding:0"><div style="padding:0 0.25em">

<ul><li><a href="Debits_and_credits" title="Debits and credits">Debits and credits</a></li>

<li><a href="Revenue" title="Revenue">Revenue</a></li>

<li><a href="Cost_of_goods_sold" title="Cost of goods sold">Cost of goods sold</a></li>

<li><a href="Operating_expense" title="Operating expense">Operating expense</a></li>

<li><a href="Capital_expenditure" title="Capital expenditure">Capital expenditure</a></li>

<li><a href="Depreciation" title="Depreciation">Depreciation</a></li>

<li><a href="Gross_income" title="Gross income">Gross income</a></li>

<li><a href="Net_income" title="Net income">Net income</a></li></ul>

</div></td></tr></tbody></table></div>

<div class="navbox-styles"></div><div role="navigation" class="navbox authority-control" aria-label="Navbox391" style="padding:3px"><table class="nowraplinks hlist navbox-inner" style="border-spacing:0;background:transparent;color:inherit"><tbody><tr><th scope="row" class="navbox-group" style="width:1%">Authority control databases: National </th><td class="navbox-list-with-group navbox-list navbox-odd" style="width:100%;padding:0"><div style="padding:0 0.25em"><ul><li><span class="uid"><a rel="nofollow" class="external text" href="https://d-nb.info/gnd/4226483-2">Germany</a></span></li></ul></div></td></tr></tbody></table></div></div><div><div class="zim-footer">

This article is issued from <a class="external text" title="Last edited on 2025-07-20" href="https://en.wikipedia.org/wiki/?title=Book_value&oldid=1301527135">Wikipedia</a>. The text is available under <a class="external text" href="https://creativecommons.org/licenses/by-sa/4.0/deed.en">Creative Commons Attribution-Share Alike 4.0</a> unless otherwise noted. Additional terms may apply for the media files.

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