If you're new to accounting and finance, you may have come across the term "book value" and wondered what it means.
What is the definition of book value?
Book value is an accounting term used to measure the equity of a company and the net worth of its assets. It is calculated by subtracting total liabilities from total assets on a balance sheet. Book value is important because it helps investors determine the value of a company, and can be used to compare the profitability of companies in comparison with their market values. It is typically lower than the market value, which makes it useful for fundamental stock analysis such as calculating book value per share (BVPS) and price-to-book (P/B) ratio. Book value also provides insight into intangible vs tangible assets in relation to a company's financial position.