Book value in accounting is the value at which an asset or a whole company is carried on the balance sheet after subtracting accumulated depreciation, amortization, or liabilities. For a single asset, the formula is original cost minus accumulated depreciation. For an entire company, it is total assets minus total liabilities, which is the same figure as shareholders’ equity. The number is grounded in what was actually paid and recorded, not in what the market might pay today.
The Two Formulas
Which formula you use depends on whether you are valuing one asset or the whole business.
For an individual asset:
- Asset book value = Original cost − Accumulated depreciation (or amortization)
If a company bought a delivery truck for $60,000 and has recorded $22,000 in depreciation, the truck’s book value is $38,000. That is the net carrying value shown on the balance sheet.
For an entire company:
- Company book value = Total assets − Total liabilities
A business with $1,000,000 in total assets and $600,000 in liabilities has a book value of $400,000. That figure is the shareholders’ equity, the residual interest that belongs to owners once every obligation has been paid.
Where an Asset’s Book Value Starts: Historical Cost
Every asset enters the books at its historical cost. That means the price paid in the original transaction plus whatever else it took to get the asset ready for use. The cost principle is one of the most conservative rules in accounting: you record what you paid, not what you think the asset is worth now.
The IRS is specific about what belongs in that opening figure. Beyond the purchase price, you capitalize freight, installation and testing fees, sales tax, legal and recording fees, and any other cost tied directly to acquiring and preparing the asset.1Internal Revenue Service. Publication 551 (12/2025), Basis of Assets
A worked example: a company buys a manufacturing unit for $500,000, pays $15,000 for delivery, and spends $10,000 on professional installation. Its historical cost on the books is $525,000. That number stays put even if the equipment could sell for far more, or far less, a year later.
Land is the exception nobody expects. It is never depreciated, because under accounting standards it has an unlimited useful life. A $200,000 parcel sits on the balance sheet at $200,000 indefinitely. When a company buys property that includes both land and a building, it has to allocate the total price between the two, because only the building portion gets depreciated.1Internal Revenue Service. Publication 551 (12/2025), Basis of Assets
How Depreciation and Amortization Reduce Book Value
Once an asset is on the books, its carrying value falls over time. Tangible assets like machinery and vehicles are depreciated. Intangible assets like patents and software licenses are amortized. Both processes do the same thing conceptually: they spread the cost of the asset across the years it delivers economic benefit.
The most common method on financial statements is straight-line depreciation, which divides the depreciable cost evenly across the useful life. Salvage value, meaning whatever the asset is expected to be worth at the end, comes out of the top of the formula:
- Annual depreciation = (Original cost − Salvage value) ÷ Useful life in years
Equipment that costs $110,000, has a 10-year useful life, and a $10,000 salvage value generates $10,000 in depreciation each year. After three years, accumulated depreciation is $30,000 and book value is $80,000. After ten years, book value equals the $10,000 salvage figure, and depreciation stops there.
Accumulated depreciation sits in a contra-asset account on the balance sheet. It offsets the original cost so a reader can see both what the company paid and how much has been allocated to expense. The gap between the two is the current book value.
When Book Value Drops All at Once: Impairment
Depreciation is gradual and predictable. Impairment is neither. If something happens that makes an asset worth significantly less than its carrying value, the company may need to write the asset down immediately rather than waiting for normal depreciation to catch up.
Under U.S. accounting rules, companies test long-lived tangible assets and definite-lived intangible assets for impairment only when a triggering event suggests the carrying amount may not be recoverable. Common triggers include a sharp drop in market price, a major change in how the asset is used, adverse legal or regulatory developments, or operating losses that show the asset will not produce the cash flows originally expected. If the loss is real, the asset is written down to fair value, and future depreciation is recalculated from that lower number.
Goodwill and indefinite-lived intangibles work differently. They are not depreciated at all, but they must be tested for impairment at least once a year, and a failed test produces a write-down that can be very large.
Company-Level Book Value and Shareholders’ Equity
When investors talk about a company’s book value, they almost always mean total shareholders’ equity: everything the company owns at recorded values, minus everything it owes. Liabilities include current items like accounts payable and long-term items like bonds and bank loans.
In a theoretical liquidation where every asset sold at book value and every creditor was paid off, shareholders’ equity is what would remain for the owners. Real liquidations rarely produce book-value prices, but the figure is still a useful anchor.
A few things move company book value in ways that are easy to miss. Share buybacks reduce equity, because repurchased shares are recorded in a contra-equity account. Retained earnings, meaning profits reinvested rather than paid out as dividends, push equity up over time. And under GAAP, companies cannot put internally built goodwill, brand recognition, or customer loyalty on the balance sheet at all. The costs of building those assets were expensed as incurred, so a company with a brand worth billions may show almost none of that value in book value. Only intangibles acquired from an outside party, or certain internally developed software, appear as assets.
Book Value Per Share
Book value per share turns the company-level number into something you can compare directly against a stock price:
- Book value per share = (Total equity − Preferred equity) ÷ Common shares outstanding
Preferred equity comes out of the numerator because preferred shareholders have a senior claim on assets. What is left belongs to common shareholders. A company with $400,000 in total equity, $50,000 in preferred stock, and 35,000 common shares outstanding has a book value per share of $10.
Some analysts also calculate tangible book value per share, which removes goodwill and other intangibles from the numerator. This is common for banks and financial institutions, where tangible assets are a better proxy for what shareholders would recover in a worst-case scenario. A company can look fine on a standard book-value basis and much thinner once the hardest-to-sell assets come out.
Book Value vs. Market Value
Book value and market value answer different questions. Book value is what the accounting records show based on past transactions. Market value is what investors are willing to pay right now. The two rarely match, and the gap is informative.
The price-to-book ratio captures that gap:
- P/B ratio = Market price per share ÷ Book value per share
A P/B of 1.0 means the stock trades at exactly its book value. Below 1.0 can signal either an undervalued stock or a real problem with the business. Above 1.0 means the market expects the company to earn returns beyond what its recorded assets would suggest. Technology companies routinely trade at P/B ratios of 5, 10, or higher because so much of their value sits in intellectual property, network effects, and future growth that never appears on a balance sheet. Utilities and heavy manufacturing tend to trade much closer to 1.0 because their value is tied to physical assets already on the books.
The ratio is most useful within the same industry. Comparing a software company’s P/B to a steel manufacturer’s tells you almost nothing.
Tax Book Value Is Not the Same as Financial Book Value
The same asset can have one book value for financial reporting and a different one for taxes. Financial statements typically use straight-line depreciation. Tax returns usually rely on the Modified Accelerated Cost Recovery System (MACRS), which front-loads larger deductions into the early years.2Internal Revenue Service. Publication 946 (2024), How to Depreciate Property
MACRS assigns each asset class a fixed recovery period. Vehicles are 5-year property, office furniture and most equipment are 7-year, and nonresidential real property is 39-year. Those periods do not always match the useful-life estimates used for financial reporting, so a gap between the two book values exists from day one.2Internal Revenue Service. Publication 946 (2024), How to Depreciate Property
The gap widens further with bonus depreciation and Section 179 expensing. Under the One, Big, Beautiful Bill signed into law in 2025, businesses can deduct 100 percent of the cost of qualifying property in the first year it is placed in service.3Internal Revenue Service. One, Big, Beautiful Bill Provisions A $200,000 piece of equipment can have a tax book value of zero on the day it is installed while its financial statement book value is still near $200,000. Section 179 works the same way for qualifying equipment up to an annual cap that adjusts for inflation.4Internal Revenue Service. Treasury, IRS Issue Guidance on the Additional First Year Depreciation Deduction Amended as Part of the One, Big, Beautiful Bill
Neither number is wrong. One follows GAAP so investors get a consistent picture. The other follows the tax code and determines what the company owes the IRS this year.
What Book Value Doesn’t Tell You
Book value is useful because it is objective. It is built from verifiable transactions rather than opinions about worth. That objectivity has costs.
Historical cost can drift far from reality in both directions. A building bought 30 years ago for $500,000 might be worth $3 million today, yet appear on the balance sheet at $50,000 after decades of depreciation. Specialized equipment that cost $2 million might be nearly worthless to anyone other than its current owner, yet still carry a six-figure book value.
The biggest gap is what GAAP will not let companies capitalize. Years of building a brand, a customer base, or a proprietary technology platform produce none of the corresponding assets on the balance sheet, because R&D and marketing were expensed as they happened. This is why knowledge-intensive companies often trade at market values many times their book value, and why relying on book value alone to judge such a company would be a mistake.
Book value also assumes the business is a going concern. In an actual liquidation, forced-sale prices are almost always lower than what the balance sheet implies. Inventory recorded at cost may sell for pennies on the dollar, and receivables that look collectible on paper may never come in. Tangible book value per share is the more conservative version of the number for readers who want to know what shareholders might actually recover.