Book Value

Book Value

The book value of a company is the net value of the assets of the company calculated by subtracting the value of intangible assets and liabilities from the total value of the company’s assets. This method of valuation can serve as an estimate of the total liquidation value of the company that the shareholders would receive if the company’s business activities were closed and the company was legally wound up. The method of valuation can also act as a check on other forms company appraisal and valuation. Differences between a company’s book value and its stock price can indicate that the company is over or under valued and can help investors understand what factors the market or an appraiser is relying on to determine a company’s value. Startup companies are typically asset-lean and have a minimal valuation. Investors in startup companies may use the book value of a company tactically to drive down the price the investor is willing to pay for an equity stake in a startup company; however, most angel and seed investors do not rely heavily on book value in their investment strategy. Founders can use the valuation to keep a check on the company’s liabilities and to understand of the financial consequences of failure.