What is book value?

Published Thursday 23 July 2026

Table of contents

• What is book value?
• Book value vs market value
• How to calculate book value
• Why book value matters for your business
• Price-to-book ratio
• Limitations of book value
• Track your business finances with confidence
• FAQs on book value

Key takeaways

• Book value is the net value of a company's assets after subtracting all liabilities, representing what shareholders would theoretically receive if the business were liquidated
• You can calculate book value at company level (total assets minus total liabilities) or at asset level (original cost minus accumulated depreciation)
• Book value and market value often differ because market value reflects what buyers are willing to pay, while book value is based on historical accounting figures
• Tracking your book value over time helps you understand your business's financial health and prepare for investment, sale, or lending conversations

What is book value?

Book value is the net value of a company's assets after subtracting all its liabilities. It represents what shareholders would theoretically receive if the business sold everything it owns and paid off all its debts.

You'll find book value recorded on your balance sheet. It's sometimes called net asset value, net worth, or book value of equity. The figure is based on historical costs recorded in your accounts, not on what those assets might fetch on the open market today.

Book value applies at 2 levels. At a company level, it's the total value of the business after debts. At an individual asset level, it's the original purchase price of an asset minus any depreciation or amortisation that's built up over time.

Book value vs market value

Book value and market value measure different things. Book value is based on the figures in your accounting records. Market value is what someone would actually pay to buy your business or asset right now.

The 2 figures can differ significantly. For example, if you bought commercial property for £200,000 5 years ago, its book value might be £170,000 after depreciation. But if property prices in your area have risen, its market value could be £250,000 or more.

Market value is shaped by supply and demand, economic conditions, and buyer sentiment. Book value stays grounded in your historical accounting records. Neither figure tells the full story on its own, but comparing them gives you a clearer picture of where your business stands.

How to calculate book value

There are several ways to calculate book value depending on whether you're looking at your whole business, a single asset, or a per-share figure. Here's how each one works.

Book value of a company

To calculate the book value of your company, subtract your total liabilities from your total assets. Both figures come straight from your balance sheet.

Book value = total assets - total liabilities

For example, Joe's Plumbing Ltd has £2 million in assets (vehicles, tools, cash, and accounts receivable) and £500,000 in liabilities (loans, supplier invoices, and tax owed). The company's book value is £2,000,000 - £500,000 = £1,500,000.

A more detailed calculation might also subtract intangible assets like goodwill to give you a tangible book value. You can also learn about owner's equity for another way to understand your business's financial position. Learn more in the guide on how to value a company.

Book value of an asset

For a tangible asset, subtract the accumulated depreciation from the asset's original cost. If you've made improvements to the asset, add those costs to the original price before subtracting depreciation.

Asset book value = original cost - accumulated depreciation

For example, The Cake Company bought a box-making machine for £11,000. Using straight-line depreciation at £1,000 per year, after 5 years its book value is £11,000 - £5,000 = £6,000. That £6,000 figure is what appears on the balance sheet, even if the machine could sell for more or less on the second-hand market.

Book value per share

Book value per share (BVPS) divides the company's total book value by the number of outstanding shares. It tells investors what each share is worth based purely on the company's net assets.

BVPS = total book value / number of outstanding shares

For example, if a company has a book value of £3 million and 1 million shares outstanding, the BVPS is £3. Investors compare this figure to the current share price to gauge whether a company might be undervalued.

Why book value matters for your business

Knowing your book value gives you a clear baseline for your business's financial health. It's a figure you can track over time to see whether your net worth is growing or shrinking.

Book value becomes especially useful when you're preparing for a business sale, seeking investment, or applying for a loan. Lenders and investors look at book value to understand what tangible assets back up the business. A strong book value can strengthen your negotiating position.

It also helps you spot potential issues early. If your book value is declining while your revenue stays flat, it could signal rising debts or assets losing value faster than expected. Keeping your balance sheet up to date in your accounting software makes it straightforward to check this figure whenever you need it.

Price-to-book ratio

The price-to-book (P/B) ratio compares a company's market value to its book value. It's calculated by dividing the current share price by the book value per share.

P/B ratio = market price per share / book value per share

A P/B ratio below 1 suggests the market values the company at less than its net assets, which could mean it's undervalued. A ratio above 1 means the market sees extra value beyond what's on the balance sheet, perhaps due to strong brand reputation, growth potential, or intellectual property.

For small business owners, the P/B ratio is most relevant if you're considering buying shares in another company or if your own business has issued shares. It's one of several tools that help you assess whether a price tag reflects fair value.

Limitations of book value

Book value has some important limitations to keep in mind. It's based on historical cost, so it doesn't reflect what your assets are actually worth today. A piece of equipment you bought 10 years ago could be worth far more or less than its depreciated book value suggests.

Intangible assets like brand recognition, customer relationships, and expertise don't always appear on the balance sheet. For service-based businesses, these intangibles can make up a large portion of the business's real value, yet book value misses them entirely.

Industry context matters too. Asset-heavy businesses like manufacturers tend to have book values closer to their market values. Service businesses, tech companies, and creative agencies often have market values that far exceed their book values. Treat book value as one useful data point rather than the definitive measure of what your business is worth.

Track your business finances with confidence

Understanding your book value starts with keeping accurate, up-to-date financial records. When your balance sheet reflects the real state of your assets and liabilities, you can make better decisions about growth, investment, and planning.

Xero's online accounting software connects to your bank, automates reconciliation, and keeps your balance sheet current so you can have a clearer view of where your business stands. Get one month free.

FAQs on book value

Here are some frequently asked questions about book value and how it applies to your business finances.

What is book value in accounting?

In accounting, book value is the recorded value of an asset or a company on the balance sheet. For a company, it's total assets minus total liabilities; for an individual asset, it's the original cost minus accumulated depreciation.

How do you calculate book value?

Subtract your total liabilities from your total assets to get your company's book value. For a single asset, subtract the accumulated depreciation from the original purchase price.

What is the difference between book value and market value?

Book value is based on historical costs in your accounting records, while market value reflects what a buyer would pay right now. Market value can be higher or lower than book value depending on demand, economic conditions, and intangible factors.

Why is book value important for small businesses?

Book value gives you a clear, objective measure of your business's net worth. It's useful when applying for loans, negotiating a sale, or simply tracking whether your financial position is improving over time.

Can book value be negative?

Yes, book value can be negative if your total liabilities exceed your total assets. This means the business owes more than it owns, which could signal financial difficulty and may warrant a review of your debt levels and cash flow.