Book value represents the net asset value of a company, calculated as its total assets minus its total liabilities.
Primary Implication
Don’t let the total asset value reflected on your Balance Sheet fool you into thinking your assets are worth what your accountant is stating their value as. The harder an asset is to convert into cash, the more likely it is to be overstated on the Balance Sheet.
Remember the value of your business, and any asset in your business isn’t what’s reported on your Balance Sheet. It is what someone would pay for the asset that represents a more valid asset value. Absent someone buying the asset from you, the next best measure of asset value is the book value of the asset.
Overview
Book value refers to the total amount a company would be worth if it liquidated its assets and paid back all its liabilities. Book value is also used to represent the value of a particular asset on the company’s balance sheet after deducting accumulated depreciation and monies still owed from the cost of the asset.