Book Value (Company) - Explained
What is the Book Value of a Company?
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Table of ContentsWhat is the Book Value of a Company?How is the Book Value of a Company Used? Academic Research on Book Value of a Company
What is the Book Value of a Company?
The Book Value of a company simply refers to the value of a company after its assets have been liquidated and its liabilities paid. A company's balance sheet contains the firm's net asset value. This is an estimate of a company's worth as the difference between the value of tangible assets and liabilities. Hence, book value can be viewed in relation to a company's stock value after taking liabilities into consideration.
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How is the Book Value of a Company Used?
Book value means the accounting value of a firm that pictures the worth of a firm after it has been liquidated or the stock value of a firm when compared to the general market value. Book value can also be referred to net book value or net asset value. This term is also applicable in personal finance as it reflects the price paid for a debt or security by an investor. Book value is an accounting practice that records the asset value and accumulated earnings and depreciation of a company resulting from asset use. It also represents the amount shareholders would receive (shareholders worth) if a company were liquidated. Book value is also an accounting value that reflects whether a companys stock is underpriced or overpriced. Book value can be a substitute shareholders interest or market worth. It is also useful in the comparison of the stock values of similar companies. It exemplifies their decrease or increase in shares worth or market value in a fair market. However, it might be difficult to use book value when comparing firms from different industries because of the difficulty in coming up with a comparable valuation.
Academic Research on Book Value of a Company
- What is a Company Really Worth? Intangible Capital and the" Market to Book Value" Puzzle, Hulten, C. R., & Hao, X. (2008). National Bureau of Economic Research.
- Intellectual capital: The new wealth of organizations, Stewart, T., & Ruckdeschel, C. (1998). Performance Improvement, 37(7), 56-59.
- Relative valuation roles of equity book value and net income as a function of financial health, Barth, M. E., Beaver, W. H., & Landsman, W. R. (1998). Journal of Accounting and Economics, 25(1), 1-34.
- The effects of management buyouts on operating performance and value, Kaplan, S. (1989). Journal of financial economics, 24(2), 217-254.
- Book-to-market ratios as predictors of market returns1, Pontiff, J., & Schall, L. D. (1998). Book-to-market ratios as predictors of market returns1. Journal of Financial Economics, 49(2), 141-160.
- The usefulness of earnings and book value for equity valuation in emerging capital markets: evidence from listed companies in the People's Republic of China, Bao, B. H., & Chow, L. (1999). Journal of International Financial Management & Accounting, 10(2), 85-104.
- Managerial entrenchment and capital structure decisions, Berger, P. G., Ofek, E., & Yermack, D. L. (1997). The journal of finance, 52(4), 1411-1438.
- The effect of bonus schemes on accounting decisions, Healy, P. M. (1985). Journal of accounting and economics, 7(1-3), 85-107.
- Human capital indicators, business performance and market-to-book ratio, Senz, J. (2005). Journal of Intellectual Capital, 6(3), 374-384.
- Disclosure level and the cost of equity capital, Botosan, C. A. (1997). Accounting review, 323-349.
- Assessing knowledge assets: a review of the models used to measure intellectual capital, Bontis, N. (2001). International journal of management reviews, 3(1), 41-60.