the value of individual assets, calculated as actual cost minus allowances for any amortization (eg, depreciation). It may be quite different from market value (thereby giving rise to hidden assets). Book value on an overall balance sheet basis is net asset value (ie, total assets minus all liabilities). In reports to shareholders [of publicly held corporations], common shareholders’ per-share equity/book value is obtained by dividing:
EXAMPLE:
XYZ Co decides to close ten of its branch offices. As part of the closing, it makes a deal with another company – to sell the buildings in which the offices were located. The original cost of the buildings was $6 million, and their book value has been reduced to $4 million (due to depreciation). The actual market value is $8 million; since, in fact, the buildings have appreciated in value. As such, the two [prospective] trade partners haggle over the purchase price.
Companies that invest in stock [of other companies] usually carry the investment at its original cost as book value. The true market value, on the other hand, may be many times the cost.
