Book value
Book value is your assets minus your liabilities. Learn how to calculate it and why it matters.
Published Thursday 23 July 2026
Table of contents
Key takeaways
- Book value has two meanings: it measures a business's equity, and it's the value of an asset as it appears on the balance sheet.
- The book value of a company is its total assets minus its total liabilities, and it's also called net worth, book value of equity, or shareholders' equity.
- Book value isn't the same as market value, which is what buyers are willing to pay based on supply and demand.
- Owners, lenders, and investors use book value to gauge what a business is worth and whether it looks under or overpriced.
What is book value?
Book value is what a business is worth on paper: its total assets minus its total liabilities. It's an accounting term with two related meanings, measuring both a business's equity and the value of a single asset as it appears on the balance sheet.
When it refers to a whole company, book value is also called net worth, book value of equity, or shareholders' equity. It's the amount shareholders would theoretically receive if the business sold everything and paid off its debts.
For a more detailed figure, you can deduct intangible assets like trademarks or goodwill, which gives you a stricter view of what the business owns.
Book value vs market value
Book value and market value both describe what a business or asset is worth, but they measure very different things. It helps to know which one you're looking at before you make a decision.
Book value isn't the same as market value. Market value is what buyers are actually willing to pay, and it's driven by supply and demand and other outside factors, so it can sit well above or below the book value.
How to calculate book value of a company
Working out the book value of a company is straightforward once you have its financial statements. You take everything the business owns and subtract everything it owes.
The formula is total assets minus total liabilities. If you want to sharpen the picture of your assets and liabilities, you can also deduct intangible assets for a more conservative figure.
For example, Joe's Plumbing Ltd has $2 million in assets and $500,000 in liabilities. Its book value is $2 million minus $500,000, which comes to $1.5 million.
You can go deeper in our guide How to value a company.
How to calculate book value of an asset
You can also work out the book value of a single asset, like a vehicle or a piece of equipment. This shows what the asset is worth after it's lost value over time.
The formula is the asset's original cost minus its accumulated depreciation. If you've made improvements to the asset, you can add those costs to the original cost.
For example, The Cake Company bought a box-making machine for $11,000. Using straight-line depreciation of $1,000 per year, its book value after 5 years is $6,000.
Why book value matters
Book value gives owners, lenders, and investors a grounded, on-paper view of what a business is worth. It's a useful reality check when you're making decisions about your finances.
As an owner, it helps you see your equity and track how it grows. Lenders look at it to judge whether your business could cover its debts, and investors compare it with market value to decide if a business looks under or overpriced.
Investors also use two related measures. Book value per share is a company's book value divided by its number of shares, and the price-to-book (P/B) ratio compares the share price with the book value per share to show how the market values each dollar of equity.
Keep an eye on your book value with Xero
Your book value shifts as your assets, liabilities, and depreciation change, so it pays to keep your numbers current. When your finances live in one place, you can see where your business stands at any moment.
Xero pulls your assets and liabilities together and helps keep your balance sheet up to date, so it's easier to work out your book value. Try Xero and get one month free.
FAQs on book value
Here are answers to some frequently asked questions about book value to help you put the term to work in your business.
Is book value the same as market value?
No, they measure different things. Book value is a business's assets minus its liabilities on paper, while market value is what buyers are willing to pay.
Can book value be negative or change over time?
Yes, book value can turn negative when a business's liabilities are greater than its assets. It also changes over time as assets depreciate and liabilities go up or down.
What is book value per share?
Book value per share is a company's book value divided by the number of shares it has issued. It shows how much equity sits behind each share.
Why do lenders and investors look at book value?
Lenders use it to judge whether a business could repay its debts if it sold its assets. Investors compare it with market value to decide whether a business looks under or overpriced.
Related terms
Learn more about book value
Handy resources
Advisor directory
You can search for experts in our advisor directory
Xero Small Business Guides
Discover resources to help you do better business
Financial reporting
Keep track of your performance with accounting reports
Disclaimer
This glossary is for small business owners. The definitions are written with their requirements in mind. More detailed definitions can be found in accounting textbooks or from an accounting professional. Xero does not provide accounting, tax, business or legal advice.