Net book value

Definition

Net book value is the value of an asset as it appears on the balance sheet, calculated as the original cost minus accumulated depreciation. It represents the current worth of an asset in accounting terms.

5 Must Know Facts For Your Next Test

1. Net book value is used to determine a company's asset value for financial reporting purposes.
2. It helps investors assess whether a stock is overvalued or undervalued by comparing it with market value.
3. In stock valuation, net book value per share can be computed by dividing total net book value by the number of outstanding shares.
4. Net book value does not account for market conditions and may differ significantly from market value.
5. Depreciation methods (e.g., straight-line or declining balance) directly impact the calculation of net book value.

Review Questions

• How is net book value calculated?
• Why might the net book value of an asset differ from its market value?
• What role does net book value play in stock valuation?

Related terms

Market Value:

The price at which an asset would trade in a competitive auction setting.

Depreciation:

The process of allocating the cost of a tangible asset over its useful life.

Outstanding Shares: The total number of shares currently owned by all shareholders, including share blocks held by institutional investors and restricted shares owned by insiders.