Book value
Learn what book value is, how to calculate it, and how it differs from market value.
Published Thursday 23 July 2026
Table of contents
Key takeaways
- Book value can mean a company's equity (total assets minus total liabilities) or the carrying value of a single asset on the balance sheet.
- You work out a company's book value by subtracting total liabilities from total assets, and an asset's book value by subtracting depreciation from its original cost.
- Book value is based on accounting records, while market value reflects what buyers will actually pay, so the two figures often differ.
- Book value helps you gauge financial position, compare against market value, and inform a sale or investment decision.
What is book value?
Book value is the value of a company or an asset according to its accounting records, rather than its market price. In simple terms, it's what would be left over if you sold everything at the recorded value and paid off what you owe.
The term carries two related senses. For a company, book value is its equity: total assets minus total liabilities, the same figure shown on the balance sheet. For a single asset, book value is its carrying value: the original cost less any depreciation recorded against it over time.
Book value vs market value
Book value and market value measure worth in different ways, so they rarely match. Knowing the difference helps you read a valuation correctly.
Book value comes straight from the accounting records and reflects historical cost less depreciation. Market value is what a buyer will pay right now, shaped by demand, future earnings potential, brand strength, and market conditions. A profitable, growing business often has a market value well above its book value, because buyers pay for expected future returns that the books don't capture.
How to calculate book value of a company
To find a company's book value, you subtract its total liabilities from its total assets. This gives you the equity that would remain for owners if the company settled all its debts.
The formula is total assets minus total liabilities. For example, Joe's Plumbing Ltd has $2 million in assets and $500,000 in liabilities. The company's book value is $2 million minus $500,000 = $1.5 million.
This figure is also known as net worth or owner's equity, and it sits at the heart of the accounting equation, which states that assets equal liabilities plus equity.
How to calculate book value of assets
To find the book value of a single asset, you subtract the total depreciation to date from its original purchase cost. This shows what the asset is currently worth on the books after accounting for wear and age.
The formula is original cost minus depreciation. For example, The Cake Company bought a box-making machine for $11,000. After five years, the machine has depreciated at a rate of $1000 per year (using straight line depreciation). Its book value is now $6000.
What is book value per share (BVPS)?
Book value per share (BVPS) shows how much book value backs each share a company has issued. It's a useful way to size up a company's equity on a per-share basis.
You calculate BVPS by dividing shareholders' equity by the number of shares outstanding. For example, if a company has $1.5 million in shareholders' equity and 500,000 shares outstanding, its book value per share is $3.
What is the price-to-book (P/B) ratio?
The price-to-book (P/B) ratio compares a company's share price against its book value per share. Investors use it to judge how the market is pricing a company relative to its accounting value.
You calculate it by dividing the market price per share by the book value per share. A high P/B ratio suggests the market expects strong future growth and is paying a premium above book value. A low ratio, closer to or below 1.0, can suggest the market values the company at or below its recorded equity.
Why book value matters
Book value gives you a grounded, records-based view of what your business is worth. That makes it a practical reference point when you're making bigger decisions.
As a small business owner, you can use book value to gauge your financial position, inform a sale or investment decision, and compare your recorded equity against market value to see how buyers might view the business. If you're weighing up a sale, this guide on How to value a company walks through the wider picture.
Understand your business's value with Xero
Keeping accurate, up-to-date records makes book value simple to work out whenever you need it. Xero brings your assets, liabilities, and depreciation together in one place to help you track the numbers behind your business's value. See what accounting software can do for you and Get one month free.
FAQs on book value
Here are answers to some frequently asked questions about book value to help you apply the term with confidence.
Why is it called book value?
It's called book value because the figure comes from a company's accounting books rather than the open market. The books record assets and liabilities at their accounting value, which is where the term comes from.
Is book value the same as market value?
No, book value is based on accounting records while market value is what a buyer will pay. The two figures often differ, sometimes significantly.
Why is market value usually higher than book value?
Market value often sits higher because buyers pay for future earnings, growth potential, and brand strength that the books don't capture. Book value only reflects recorded costs less depreciation.
What does a price-to-book ratio of 1.0 mean?
A price-to-book ratio of 1.0 means the market price per share equals the book value per share. In other words, the market is valuing the company at exactly its recorded equity.
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.