Investment Formula Description
Hence, sometimes, net book value ( NBV ) for an asset is also referred as depreciated cost or book value. If apply on companies, net book value has same meaning with book value or net asset value ( NAV ) , which is net value for an company and will be used in price book ratio ( P/B ratio ) and market to book ratio to compare market value and book value of an company. Net book value ( NBV ) for assets is purely estimate as the prediction on an asset's useful life might not accurate. However, net book value ( NBV ) can give investors the rough idea of the asset values. Besides, for assets, net book value ( NBV ) can be used to measure the value of long term liabilities, which will be amortized, such as bonds.
Net Book value ( NBV ) = Cost of Assets - Accumulated depreciation
Net Book value ( NBV ) = Total Assets - Intangible Assets - Liabilities
Investment Formula Example
Corporation XYZ bought a machine with $3,000 and expect it has useful life of 3 years. On the next year, the net book value ( NBV ) calculation for this machine is as following.
Accumulated Depreciation = Depreciation per year X Total Years = 1,000 X 1 = $1,000
Net Book Value ( NBV ) = Cost of Assets - Accumulated Depreciation = 3,000 - 1,000 = $2,000
The net book value ( NBV ) for this machine on next year is $2,000 after it was depreciated for $1,000. Another year later, the net book value ( NBV ) for this machine will become $1,000.
The following example is net book value ( NBV ) 's example for companies.Total Assets for corporation XYZ is $500,000 while the intangible assets is $250,000 and the liabilities is $70,000. The net book value ( NBV ) calculation for corporation XYZ is as following.
Net Book Value ( NBV ) = Total Assets - Intangible Assets - Liabilities = 500,000 - 250,000 -70,000 = $ 180,000
The net book value ( NBV ) for corporation XYZ is $180,000.