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What is Book Value?

Malcolm Tatum
By
Updated May 17, 2024
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When dealing with stocks, analysts often will want to know the book value of the common stock. Essentially, the book value has to do with the calculated worth of the company’s common stock as of the most recent balance sheet. There are several elements that go into calculating the current book value which make the information necessary in a number of different applications.

The initial book value of any asset is either the cash value of the asset, or the acquisition cost. Cash assets, of course, are not subject to depreciation. Buildings, land, and operating equipment would tend to be valued based on the acquisition cost initial, with the understanding that the total cost of acquisition includes both the purchase price and any other expenses associated with the acquisition, such as broker fees or other types of processing fees.

Over time, there are factors that will impact that initial book value. Depreciation of some assets will mean that the actual cash value may temporarily be lower than the acquisition cost. Amortization and depletion will also play role in determining the posted book value of both the individual assets and the total assets of a company. As different factors influence the actual book value from one period to the next, the change will be reflected on the balance sheet covering each period. This helps to ensure that value investors can always have access to the latest status of the book value of the assets.

While the use of the term book value is common in many countries, the process is sometimes referred to as the net asset value. This is in recognition that book value is generally represented as the shareholder’s equity in the company, since the equity has to do with the claim of the shareholders on the assets of the company, minus any outstanding liabilities.

In cases where a company is about to be liquidated, and the assets sold off, the book value becomes the focal point for paying off current shareholders. In essence, the book value, which takes into consideration the worth of current liabilities held by the company, ensures that persons who currently own stock in the company will receive payment for each share that is equal to the worth that is shown on the final balance sheet.

WiseGeek is dedicated to providing accurate and trustworthy information. We carefully select reputable sources and employ a rigorous fact-checking process to maintain the highest standards. To learn more about our commitment to accuracy, read our editorial process.
Malcolm Tatum
By Malcolm Tatum , Writer
Malcolm Tatum, a former teleconferencing industry professional, followed his passion for trivia, research, and writing to become a full-time freelance writer. He has contributed articles to a variety of print and online publications, including WiseGeek, and his work has also been featured in poetry collections, devotional anthologies, and newspapers. When not writing, Malcolm enjoys collecting vinyl records, following minor league baseball, and cycling.

Discussion Comments

By sapphire12 — On Jan 21, 2011

One of the cases of book value most people know more about than the stock sense is that of blue book value, the way people price their cars when they are buying or selling. like the book value described here, blue book value is sort of like an ideal- if your car is in good condition, and has everything it did when you bought it, it will live up to the blue book value; otherwise it probably will not.

Malcolm Tatum

Malcolm Tatum

Writer

Malcolm Tatum, a former teleconferencing industry professional, followed his passion for trivia, research, and writing...
Learn more
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