What Is Book Value?
Book value is the value of an asset or a company as recorded on the balance sheet — an asset's original cost minus accumulated depreciation, or a company's total assets minus total liabilities. It reflects accounting records rather than current market price.
What book value is and why it matters
Book value comes in two common uses. For a single asset, it's the carrying amount: what the business paid, reduced by depreciation or amortization over time. For a whole company, book value equals shareholders' equity — total assets minus total liabilities — representing the net worth on the books. It matters as a baseline for comparison: investors weigh a company's market value against its book value (the price-to-book ratio) to judge whether the market prices it above or below its recorded net assets. Because it's based on historical cost, book value can differ sharply from what an asset would actually fetch today.
A worked example
A company buys a delivery van for $40,000. After three years of straight-line depreciation at $6,000 per year, accumulated depreciation is $18,000, so the van's book value is $40,000 − $18,000 = $22,000. Separately, if the whole company has total assets of $900,000 and total liabilities of $600,000, its book value (equity) is $300,000 — regardless of what investors might pay for the business.
How firms handle it today
Firms track asset book values through fixed-asset and depreciation schedules, updating them at close so the balance sheet reflects current carrying amounts.
Related terms
- Depreciation
- Asset
- Shareholder equity
- Historical cost
- Valuation
FAQ
What's the difference between book value and market value?
Book value is the recorded accounting value; market value is what an asset or company would sell for today. They often differ.
How do you calculate a company's book value?
Subtract total liabilities from total assets — the result equals shareholders' equity.
Why does book value use historical cost?
Accounting records assets at what was paid, then adjusts for depreciation, rather than continuously revaluing to market.