Book value
Learn what book value means, how to calculate it for your business and assets, and why it matters.
Published Monday 17 August 2026
Table of contents
Key takeaways
- Book value represents a company's net worth on the balance sheet, calculated as total assets minus total liabilities. It's also called shareholders' equity or net asset value.
- For an individual asset, book value equals the original purchase cost minus accumulated depreciation. This figure shows what the asset is worth in your accounting records.
- Comparing book value to market value helps you understand whether a business or its shares might be undervalued, overvalued, or fairly priced.
- Tracking your book value over time gives you a clear view of financial health and helps when negotiating with investors, buyers, or lenders.
What is book value?
Book value is the net worth of a company as recorded on its balance sheet, calculated by subtracting total liabilities from total assets. It represents what shareholders would theoretically receive if the business sold all its assets and paid off all its debts. Book value is also known as shareholders' equity or net asset value.
The term applies at two levels: the overall business and individual assets. Understanding both helps you see the full picture when valuing your business or planning asset replacements.
Book value of a business
A company's book value reflects the accounting value of ownership interests. It appears in the equity section of the balance sheet and changes as the business earns profits, takes on debt, or distributes dividends. Investors and buyers often compare book value to market value when assessing whether a company is fairly priced.
Book value of an asset
For a single asset such as equipment or a vehicle, book value equals the original cost minus accumulated depreciation. This figure appears on the balance sheet and decreases each year as depreciation is recorded. It shows what the asset is worth in your accounts, not necessarily what you could sell it for today.
Book value formula
Two core formulas cover the most common uses of book value. One applies to the business as a whole; the other applies to individual assets. Both rely on figures you can find on your balance sheet, where liabilities are recorded using double-entry bookkeeping.
Company book value formula
Book value = total assets − total liabilities
This gives you the residual value belonging to shareholders after all obligations are settled.
Asset book value formula
Book value of asset = original cost − accumulated depreciation
This tells you the carrying amount of a single asset in your accounting records.
How to calculate book value of a company
Start by gathering two figures from your balance sheet:
- Total assets: RM2,000,000
- Total liabilities: RM500,000
Apply the formula: RM2,000,000 − RM500,000 = RM1,500,000. That RM1,500,000 is the company's book value, representing shareholders' equity.
Some analysts prefer tangible book value, which excludes intangible assets like goodwill, patents, or trademarks. If your intangibles total RM200,000, tangible book value is RM1,500,000 − RM200,000 = RM1,300,000. This measure focuses on physical assets that could be sold more easily.
How to calculate book value of an asset
Consider a commercial oven purchased for RM11,000 with a useful life of 10 years. Using straight-line depreciation, you record RM1,100 of depreciation expense each year.
After five years, accumulated depreciation totals RM5,500 (5 × RM1,100). The oven's book value is RM11,000 − RM5,500 = RM5,500.
If you spend RM2,000 on improvements in year three (a new component that extends the oven's usefulness), that cost is capitalised. The adjusted book value after five years becomes (RM11,000 + RM2,000) − RM5,500 = RM7,500, assuming you continue depreciating from the increased base.
What changes a company's book value?
Book value shifts as your business earns money, spends it, or adjusts its capital structure. Understanding these drivers helps you anticipate changes and plan accordingly.
- Retained profits add to equity and raise book value.
- Net losses reduce equity and lower book value.
- Issuing new shares brings in capital, increasing book value.
- Paying dividends or buying back shares returns capital to shareholders and decreases book value.
- Depreciation and asset write-downs reduce asset values, which lowers book value.
Book value vs. market value
Book value and market value measure different things. Both are useful, but neither tells the whole story on its own.
What's the difference?
Book value is the accounting figure from your balance sheet, based on historical costs and depreciation. Market value is what buyers are willing to pay right now, reflecting expectations about future earnings, brand strength, and growth potential. For publicly listed companies, market value equals the share price multiplied by total shares outstanding.
When they diverge
Market value often sits above book value when investors expect strong future profits, valuable intangibles, or competitive advantages that accounting rules do not fully capture. Market value falls below book value when investors anticipate declining performance, high debt risks, or asset impairments. When market value and book value are roughly equal, the market sees the company as fairly priced relative to its net assets.
Book value per share
Book value per share (BVPS) spreads total book value across each outstanding share. It provides a per-share baseline that investors compare against the current share price.
BVPS formula
BVPS = (total assets − total liabilities) / total outstanding shares
BVPS example
Suppose your company has RM5,000,000 in assets, RM2,000,000 in liabilities, and 100,000 shares outstanding. Book value is RM5,000,000 − RM2,000,000 = RM3,000,000. BVPS is RM3,000,000 / 100,000 = RM30 per share.
If the share price is RM45, the stock trades above book value, which may indicate market confidence in future growth. If the share price is RM20, the stock trades below book value, possibly suggesting undervaluation or concerns about future performance.
Price-to-book (P/B) ratio
The price-to-book ratio compares a company's market price per share to its book value per share. Investors use it to gauge whether a stock appears cheap or expensive relative to the company's net assets.
P/B ratio formula
P/B ratio = market price per share / book value per share
How to interpret the P/B ratio
Using the earlier example where BVPS is RM30 and the share price is RM45, the P/B ratio is 45 / 30 = 1.5. This means investors pay RM1.50 for every RM1 of book value.
A P/B ratio below 1.0 may signal undervaluation, but it could also reflect expected decline or hidden problems. A ratio above 1.0 often indicates that investors expect growth or value intangibles not captured on the balance sheet. P/B norms vary by industry, so compare companies within the same sector for meaningful insights.
Why book value matters for your small business
Book value offers a concrete reference point for decisions that affect your company's future. Track it regularly using financial statements to stay on top of your equity position.
- Assess financial health by comparing assets to liabilities at a glance.
- Establish a negotiation baseline when selling the business or bringing in investors.
- Plan asset replacements by monitoring how depreciation affects individual items.
- Understand your debt-to-equity position and how much of the business you truly own.
- Support loan applications with clear evidence of net worth.
Limitations of book value
Book value is a useful starting point, but it has blind spots. Keep these limitations in mind when making decisions.
- It relies on historical cost, which may lag behind current market prices.
- It ignores intangibles like brand reputation, customer loyalty, and proprietary knowledge.
- It varies depending on the depreciation method you choose.
- It provides a static snapshot, not a projection of future earnings.
- It understates value for service or knowledge-based businesses with few physical assets.
For a fuller picture, use book value alongside cash flow analysis, revenue growth trends, and profitability measures.
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FAQs on book value
Here are answers to common questions about book value and how it applies to your business.
Can book value be negative?
Yes. Negative book value occurs when total liabilities exceed total assets. This usually indicates accumulated losses or significant debt, and it can make securing financing more difficult.
Is book value the same as shareholders' equity?
In most contexts, yes. Both terms refer to total assets minus total liabilities. You may also see it called net asset value or owners' equity, depending on the business structure.
What is a good price-to-book ratio?
There is no single ideal P/B ratio because norms vary by industry. Asset-heavy sectors like banking often trade closer to 1.0, while technology companies may trade at higher multiples due to intangible value.
How does goodwill affect book value?
Goodwill increases total assets and therefore raises book value. However, if goodwill is later written down due to impairment, book value decreases by the same amount.
What is the difference between book value and carrying value?
The terms are often used interchangeably for individual assets. Both refer to the original cost minus accumulated depreciation or amortisation. When discussing a whole company, book value is the more common term.
How often should you calculate book value?
Review book value at least quarterly when you prepare financial statements. More frequent checks are helpful before major decisions such as seeking investment, applying for a loan, or planning an asset purchase.
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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.