Book Value of a Company

What Does Book Value of a Company Mean?

The book value of a company is the owners equity or shareholders equity, as shown on the balance sheet.

How it Works

A business has assets—that is, things it owns and money that is owed to it.

It also has liabilities—that is, what it owes to others. 

To wind a business up, it could turn its assets into cash by selling any buildings and equipment etc. 

It could also recoup any money owed to it by its customers.

After this, it could pay its suppliers and also pay off any loans it has.

Theoretically, the business could sell what it owns, get what it is owed, and take all the money out of the bank.

It could then pay back what it owes lenders and creditors. 

After this, the money left owner goes to the owner 

This is the owners equity — or the book value of the company. 

Book value is not necessarily what the business would be worth if the business was actually wound up. 

It’s only a theoretical value used to help keep track of what the business owns versus what it owes. 

© R.J. Hickman 2020