Investment Formula Description
Book value has multiple definition when it is used in different place. For balance sheet, book value is the remaining value of an asset after taking its cost to deduct with accumulated depreciation.
For company, book value is a net asset value ( NAV ) of a company by deducting intangible assets and liabilities from total assets.Furthermore, investors can obtain book value per share by dividing book value with total outstanding shares. Book value per share is commonly used in price book ratio ( P/B ratio ) and market to book ratio to compare market value and book value and find undervalued investment. Sometimes, book value can be referred as carrying value or net book value ( NBV ) too. It is the total value of the company's assets that shareholders would be received if the company went bankrupt immediately. Some investors even considered the price they paid for an investment is book value for that investment. In the later stage, after the investors sold that investment, they will deduct the book value from selling price to obtain capital gain or capital loss.
Book value = Cost of Assets - Accumulated depreciation
Book value or Net Asset value ( NAV ) = Total Assets - Intangible Assets - Liabilities
Investment Formula Example
Corporation ABC bought a machine with $300,000 as its cost on 2003. This machine will be depreciated $30,000 every year. The book value calculation for this machine on 2007 is as following.
Accumulated Depreciation = Depreciation per year X Total Years = 30,000 X 4 = $120,000
Book Value = Cost of Assets - Accumulated Depreciation = 300,000 - 120,000 = $180,000
The book value for this machine on 2007 is $180,000
Total Assets for corporation ABC is $1,000,000 while the intangible assets is $500,000 and the liabilities is $200,000. The book value calculation for corporation ABC is as following.
Book Value or Net Asset value ( NAV ) = Total Assets - Intangible Assets - Liabilities = 1,000,000 - 500,000 -200,000 = $ 300,000
The book value or net asset value for corporation ABC is $300,000. If corporation ABC has 600,000 total outstanding shares, the book value per share calculation is as following.
Book Value per share = Book value / total outstanding shares = 300,000 / 600,000 = $0.50
The book value per share for corporation ABC is $0.50. In the case that corporation ABC went bankrupt immediately, the investors for corporation ABC will get back $0.50 for every share they own.