Book value is a financial term that refers to the value of an asset as recorded on a company's balance sheet. It is calculated by subtracting the asset's liabilities from its assets.
For example, if a company owns a piece of equipment with a purchase price of $100,000 and has accumulated depreciation of $20,000, the book value of the equipment would be $80,000 ($100,000 - $20,000). Book value is important because it provides a measure of an asset's worth based on the company's accounting records. It is different from the market value of an asset, which is the price at which the asset could be bought or sold in the open market. The market value of an asset may be higher or lower than its book value, depending on a variety of factors. Book value is commonly used to evaluate a company's financial health and performance.
For example, if a company has a high book value compared to its market value, it may be considered undervalued by investors. On the other hand, if a company has a low book value compared to its market value, it may be considered overvalued.
