What is Book Value of a Company?
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Book Value
Book Value equals Assets less Liabilities. Book Value typically does not reflect the liquidated value of a company. Book Value may vary significantly from other objectively determined values, most notably Market Value.
Assets
Assets include existing machinery, land, buildings, inventory, cash in the bank, etc. held by the company. Problem is, many of the values on the books do not reflect actual value. For example, a piece of manufacturing equipment is put on the books at its cost when purchased. Its value is then reduced each year as depreciation is charged to income. Thus, its book value is its cost minus accumulated depreciation. The purpose of depreciation is allow a company to recover its cost, not replace the asset or reflect its liquidated value. With depreciation, older buildings may be carried on the books for $0. If that building is in a downtown metropolitan area, its value is grossly underestimated. Computer equipment is typically depreciated over 7 years. With the pace of technology, a 3-year old computer system may be worthless on the market. On the books, the computer system looks like it has value, On the open market, it is worthless. You get the idea, Asset values can be very misleading.
Liabilites
Liabilites include debt items, so you should get an accurate picture of this side of the equation.
If you want an accurate picture of the Book Value of a company, hire a good investment banker. This is often done on take-over bids. You can get the book value reported by the company from their Annual Report. It will be on the balance sheet. Companies are required to submit quarterly and annual reports to the Securities Exchange Commission (SEC). You can get these reports through our research pages.
