Book value
Assets minus liabilities: what the accounts say shareholders own.
Book value is an accounting construct, not a market one. Assets are held at historic cost less depreciation, which can be wildly different from what they would fetch today.
For a bank, book value is meaningful because its assets are financial. For a company whose value is a brand, a patent, or a network of engineers, book value is close to fiction, because none of those things are permitted to appear on the balance sheet.
Book value = Total assets − Total liabilitiesHow the three statements lock together
Profit flows from the income statement into the balance sheet as retained earnings, and the cash flow statement reconciles what was earned with what actually arrived.
It is the denominator of the P/B ratio and the anchor of traditional value investing.
Assuming book value is a floor under the share price. It is not; assets can be worth far less than stated.
Related terms
See Book value on a real company
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